RTX Corporation

▲ Bull Case

• ◆P&W reaches 14% adj. EBIT margin by FY27 (one year ahead of base) as GTF groundings fall <200, customer compensation tail completes, and MRO shop-visit volume scales on 3,000+ installed-base fleet. Adds ~$0.50 to FY27 EPS vs base; cleans up to ~$9.00 FY28 EPS vs $8.30 base.
• ◆Golden Dome contract awards scale to $5-10B/yr in FY27-28 for RTX-relevant layers (Patriot ground, SM-3 mid-course, SPY-6 sea-based). Adds $15-30B to backlog over 3 years; revenue inflection visible by FY28. Total backlog reaches $320-340B (~3.5-year visibility).
• ◆Wall Street re-rates RTX toward SOTP fair value $215-240 as conglomerate discount narrows. Collins recognized as TDG/HEI-quality aftermarket business (25-28x P/E component); P&W cleans up post-GTF; Raytheon sustains defense-prime 17-19x. At bull $9.00 FY28 EPS × 25x = $225+.

▼ Bear Case

• ◆P&W margin stalls at 11-11.5% through FY28 (vs base 13.5%) due to new GTF defect discoveries in additional powder-metal batches, Airbus litigation dragging through FY28, MRO shop-visit volume below plan. EPS impact ~-$0.55 to FY28; consensus de-rates multiple from 22x to 18-19x → bear equity value ~$137/share (-21%).
• ◆Airbus damages claim settles at $4-5B+ in FY27 (vs base $2.5B). Net cash impact pushes FY27 reported FCF to ~$5.5-6.0B vs base ~$9.5B. One-time but signals litigation risk continuation; could trigger SEC GTF investigation closure with material penalty.
• ◆Commercial aerospace cycle disappointment + Trump pricing pressure. Global recession compresses Boeing/Airbus build rates 10-15%; Collins commercial OE revenue drops ~$1B vs plan. Trump-era cost-plus margin caps cut Raytheon segment margin from 10% to 8% (~$500M EBIT hit). Combined compresses FY28 EPS to $7.20, multiple to 19x → $137/share.

“The central RTX debate is the multiple-vs-multiple comparison to GE Aerospace. RTX trades at ~25.7x forward P/E ($174/$6.80) vs GE Aerospace at ~40x ($291/$7.20)—a 56% gap wider than any point since 2024 GE Vernova spinoff. Bulls and bears split sharply: discount justified camp (different commercial mix, GTF tail risk, conglomerate dilution, defense ceiling at 18-20x) vs discount tradable camp (SOTP math $215-240, P&W recovery is structural, defense backlog provides cycle resistance). Author's read: discount is partly justified (~15-20%), partly tradable (~40% current)—yielding ~$15-25/share multiple-gap closure over 2-3 years if P&W normalization prints. Real but modest alpha at $174. Frame as narrowing-the-gap play with moderate upside and asymmetric downside from defense backlog. Secondary debate: Airbus damages claim quantum (undisclosed since March 2026)—bulls $1-3B, bears $4-6B+. Either triggers multiple re-rating on disclosure.”

• ◆Q2 2026 earnings (July): P&W margin trajectory visible at ≥11.5%; GTF groundings <300; FY27 guidance raise confirms base
• ◆Airbus damages claim settlement (FY26-27): <$2B (bull case) vs >$4B (bear case) drives $2-3B FCF impact and multiple re-rating
• ◆GTF groundings below 200 by mid-2026: confirms recovery trajectory; signals P&W margin inflection; resets consensus expectations
• ◆Golden Dome contract awards (FY27-28): $5-10B/yr RTX share in Patriot ground, SM-3 mid-course, SPY-6 sea-based adds $15-30B backlog
• ◆P&W margin progression (FY27-28): each 100 bps step toward 14% target adds ~$0.15-0.20/share to FY28 EPS; FY27 step-up to 12.5% minimum for base confirmation

• ◆Airbus damages claim >$4B settlement: step-change in litigation risk; FCF guidance cut $3-4B; multiple compression to 18-19x → $110-120/share equity value
• ◆P&W margin stalls at 11-11.5% through FY28 (vs base 13.5%): central thesis driver invalidated; new GTF defects or Airbus litigation extension resets recovery curve by 2-3 years
• ◆SEC GTF disclosure investigation charges: management credibility hit; potential leadership turnover; removes Calio-led recovery narrative and governance overhang
• ◆Trump-era binding cost-plus margin caps on defense primes: Raytheon segment margin compresses 10% to 7-8% structurally, removing ~$500M-1B EBIT/yr permanently and re-rates defense-prime multiple cohort 200-300 bps lower
• ◆Concurrent commercial aerospace recession + defense de-escalation (Ukraine ceasefire + Middle East normalization): invalidates both commercial recovery and defense backlog growth thesis simultaneously; triggers Step 15 severe scenario (5% probability)