With President Joe Biden making a historic visit to Kyiv, Ukraine, the compelling (albeit incredibly cynical) case for defense contractor Raytheon Technologies (NYSE:RTX) couldn’t be stronger. Specializing in various weapons and missile-defense systems, Raytheon also represents what embattled Ukrainian resistance forces need. Given that the conflict will likely go the distance, I am bullish on RTX stock based on the realities of the situation.
Don't Miss our Black Friday Offers:
- Unlock your investing potential with TipRanks Premium - Now At 40% OFF!
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
As TipRanks contributor Steve Anderson pointed out late last year, the White House signed off on sending the Patriot missile system to Ukraine, a key component of Raytheon’s defense product lineup.
Prior to the deal, the U.S. was hesitant in greenlighting the Patriot to Ukrainian hands. However, Anderson mentioned that “given the sheer volume of missile fire coming out of Russia and aimed at Ukraine, having a reliable means to defend against it is proving increasingly vital.”
Fundamentally, it’s not just about the effectiveness of the Patriot system that bolsters RTX stock, though that’s the primary catalyst. Rather, Raytheon may rise because the battlefields of Ukraine demonstrate to future clients the efficacy of its products.
Prior to Russia’s brazen invasion of its neighbor, Chairman of the Joint Chiefs of Staff Gen. Mark Milley warned lawmakers that Kyiv could fall within 72 hours if a full-scale attack materialized.
That a vastly-outgunned nation could go toe-to-toe with a nuclear power won’t be lost on nations looking to beef up their own security infrastructures. With Raytheon proving itself time and again, RTX stock seems like a no-brainer.
Bolstering the bull case, on TipRanks, RTX stock has an 8 out of 10 Smart Score rating. This indicates solid potential for the stock to outperform the broader market.
RTX Stock Should Fly as Commitments Struck
Another factor lifting the narrative for RTX stock centers on the duration of Russia’s military belligerence. Though the initial 72 hours did not go as planned for the Russians, it’s almost a sure bet that the Kremlin anticipated weakening western resolve. With Russia representing a major producer in the global energy markets, helping Ukraine comes with sacrifices. Yet, Biden’s commitment to Ukraine dashed any hopes for a quick resolution.
In all probability, Russian President Vladimir Putin will continue marching ahead with his war of choice. Because of the practically dictatorial role that Putin plays in Russia, any sign of weakness may be catastrophic for him. After all, a strongman cannot afford to lose his strongman image.
Though it’s a terrible outcome for humanity, the ongoing conflict will almost invariably lift RTX stock for the long haul. As Biden emphasized in his recent speech, “One year later, Kyiv stands. And Ukraine stands. Democracy stands. The Americans stand with you, and the world stands with you.”
Quite frankly, this was not the story that either the Russians or the Americans expected to read. Despite its controversial nature, Raytheon contributed a meaningful role to Ukraine’s sovereignty and defense.
Most importantly, the Ukrainian people do not have to live under the jackboot of Russian authoritarianism. However, from a financial standpoint, the conflict offers a boon for RTX stock. The underlying enterprise helped save a nation from desperate odds, thus accelerating its relevance.
The Hard Data Requires Patience
Though the narrative undergirding RTX stock arguably presents a significantly bullish case, the hard data requires a patient framework. For instance, Raytheon’s balance sheet stability isn’t particularly remarkable. In addition, its Altman Z-Score (a solvency metric) of 2.11 reflects some fiscal vulnerabilities.
Regarding its P/E ratio, RTX stock is okay but not great. For instance, shares trade at a trailing earnings multiple of 28.8, which isn’t that far removed from the sector median trailing multiple of 34. Also, the market prices RTX at a forward multiple of 20.1. Again, it’s the same situation, with the sector median forward multiple coming in at 21.5.
However, it’s also fair to point out that Raytheon enjoys a net profit margin of 7.75%. This stat ranks better than 67.52% of the competition. Further out, Raytheon’s rising reputation should help lift demand, making RTX stock an intriguing long-term investment.
Is RTX Stock a Buy, According to Analysts?
Turning to Wall Street, RTX stock has a Moderate Buy consensus rating based on nine Buys, five Holds, and zero Sell ratings. The average RTX stock price target is $109.57, implying 9.2% upside potential.
The Takeaway: RTX Stock Came Through When it Mattered
If the bullish thesis for RTX stock could come down to one concept, it would be that the underlying enterprise delivered when it mattered the most. It wasn’t just that the products worked as advertised. In many ways, they worked even better.
As military experts suggested, Ukraine had no business fending off a determined Russian attack. That it left one of the great military powers embarrassed affirms the fighting spirit of the Ukrainian people. However, it also shines a light on Raytheon, thus boding well for RTX stock.
