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RTX's Jet Engine to Operate With 100% SAF: Should You Buy the Stock?
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RTX Corp.’s (RTX - Free Report) business unit, Pratt & Whitney Canada, along with a German jet manufacturer, Deutsche Aircraft, revealed that they have recently completed a series of test flights on a D328 UpLift research aircraft, which is powered by the former’s PW127XT-S engines. Notably, the D328 jet used a fully synthetic fuel, which served as a proxy for future Power-to-Liquid (PtL) sustainable aviation fuel (SAF).
Therefore, the successful flight test marks a significant achievement for RTX, with its engines playing a critical role in aircraft operations with 100% SAF. Impressively, all of the jet engines made by Pratt & Whitney Canada are certified to operate with SAF blended up to 50% with conventional Jet A/A1 kerosene fuel, while the company is actively supporting industry efforts to develop future specifications for 100% SAF.
With the aviation industry adopting more renewable sources to promote clean energy, SAF being a primary one among them, the aforementioned announcement might lure investors to immediately add RTX stock to their portfolio. However, before making any hasty decision, let’s take a look at the company’s year-to-date performance, growth opportunities and risks (if any). This should help investors make a more prudent decision.
RTX Outperforms Industry, Sector & S&P500
RTX’s shares have surged an impressive 44.5% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s decline of 7.6% and the broader Zacks Aerospace sector’s growth of 0.3%. RTX has also outpaced the S&P 500’s return of 21.6% in the same period.
Other defense players, such as Leidos Holdings (LDOS - Free Report) , TransDigm Group (TDG - Free Report) and Lockheed Martin (LMT - Free Report) , have put up similar stellar performances. Year to date, LDOS, TDG and LMT’s shares have surged 79.4%, 36.7% and 21.7%, respectively.
RTX YTD Performance
Image Source: Zacks Investment Research
What Pushed RTX Stock Up?
Steadily improving commercial air traffic has been boosting commercial OEM as well as commercial aftermarket sales for RTX in recent times. This must have encouraged stakeholders to stay invested in this stock, further corroborated by the solid share price return offered year to date.
Keeping up with this trend, RTX’s Collins Aerospace unit registered a 7% year-over-year improvement in its third-quarter 2024 top-line performance, partially driven by a 9% improvement in commercial aftermarket sales. On the other hand, a 13% rise in commercial aftermarket and a 9% improvement in commercial OEM sales resulted in a 14% rise in adjusted sales for RTX’s Pratt & Whitney unit. Continued growth in commercial air traffic, including higher flight hours and a favorable OEM mix in Large Commercial Engines, primarily boosted the improvement in commercial aftermarket and OEM sales.
Will RTX Stock Continue With Its Growth Streak?
Looking ahead, growth prospects for the commercial aerospace market and RTX’s commercial business remain bright. As per the International Air Transport Association’s (“IATA”) latest report published in June 2024, air revenue passenger kilometers (RPKs) are projected to improve 11.6% in 2024 from the 2023 level. This should boost the demand for new aircraft, strengthening commercial OEM as well as commercial aerospace aftermarket sales for RTX in the coming days.
Moreover, as a prominent U.S. defense contractor, RTX enjoys a steady flow of orders for its combat-proven defense products, particularly missiles and radars. Such order growth culminates into notable booking and backlog count, which, in turn, boosts the company’s revenue generation prospects. Notably, RTX witnessed a solid defense backlog of $90 billion as of Sept. 30, 2024. The figure came in much higher than its backlog of $77 billion at the end of the second quarter of 2024.
Such solid revenue generation prospects from its commercial aerospace and defense businesses bolster earnings growth projections for this stock. In line with this, the Zacks Consensus Estimate for RTX’s long-term earnings growth rate is pegged at a solid 10.2%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
RTX’s Upbeat Estimates
The Zacks Consensus Estimate for fourth-quarter revenues and earnings reflects a solid improvement of 3.3% and 5.4%, respectively, from the prior-year quarter’s levels.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings suggests an improvement of 9.5% from the 2023 level, while that for revenues implies a surge of 7.2%. The 2025 estimates also reflect similar growth trends.
Image Source: Zacks Investment Research
Risks to Consider Before Choosing RTX
Despite the aforementioned growth opportunities, there remain certain risks to investing in RTX. One notable headwind plaguing stocks like RTX that operate in commercial aerospace is the supply-chain issue.
Notably, the global supply-chain disruption that was exacerbated during the COVID period still remains a major challenge affecting global trade and, thereby, the aerospace sector. To this end, the IATA announced in its June 2024 report that an inventory of 38.7 million flights is expected to be available in 2024. This reflects a decline of 1.4 million flights from its previous estimate made in December 2023.
The decline can be largely attributed to the slowing pace of deliveries in the face of persistent supply-chain issues in the aerospace sector. This, in turn, might cause RTX to experience failure in delivering its finished products to its customers within the stipulated time. Since its Pratt & Whitney is a major supplier of commercial jet engines, the failure can adversely impact its revenue generation prospects.
Moreover, steadily increasing jet fuel price tends to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This, in turn, may adversely impact the future performance of commercial OEM producers like RTX.
RTX Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-earnings (P/E) is 20.29X, a premium to its peer group’s average of 19.12X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers. RTX’s P/E also looks stretched when compared to its five-year median.
Image Source: Zacks Investment Research
Should You Buy or Hold RTX Now?
Investors interested in RTX should wait for a better entry point, considering its premium valuation.
However, those who already own this Zacks Rank #3 (Hold) company may stay invested, as its upbeat estimates, steadily improving commercial air traffic and rising demand for defense products offer solid growth prospects.
Image: Bigstock
RTX's Jet Engine to Operate With 100% SAF: Should You Buy the Stock?
RTX Corp.’s (RTX - Free Report) business unit, Pratt & Whitney Canada, along with a German jet manufacturer, Deutsche Aircraft, revealed that they have recently completed a series of test flights on a D328 UpLift research aircraft, which is powered by the former’s PW127XT-S engines. Notably, the D328 jet used a fully synthetic fuel, which served as a proxy for future Power-to-Liquid (PtL) sustainable aviation fuel (SAF).
Therefore, the successful flight test marks a significant achievement for RTX, with its engines playing a critical role in aircraft operations with 100% SAF. Impressively, all of the jet engines made by Pratt & Whitney Canada are certified to operate with SAF blended up to 50% with conventional Jet A/A1 kerosene fuel, while the company is actively supporting industry efforts to develop future specifications for 100% SAF.
With the aviation industry adopting more renewable sources to promote clean energy, SAF being a primary one among them, the aforementioned announcement might lure investors to immediately add RTX stock to their portfolio. However, before making any hasty decision, let’s take a look at the company’s year-to-date performance, growth opportunities and risks (if any). This should help investors make a more prudent decision.
RTX Outperforms Industry, Sector & S&P500
RTX’s shares have surged an impressive 44.5% in the year-to-date period, outperforming the Zacks Aerospace-Defense industry’s decline of 7.6% and the broader Zacks Aerospace sector’s growth of 0.3%. RTX has also outpaced the S&P 500’s return of 21.6% in the same period.
Other defense players, such as Leidos Holdings (LDOS - Free Report) , TransDigm Group (TDG - Free Report) and Lockheed Martin (LMT - Free Report) , have put up similar stellar performances. Year to date, LDOS, TDG and LMT’s shares have surged 79.4%, 36.7% and 21.7%, respectively.
RTX YTD Performance
What Pushed RTX Stock Up?
Steadily improving commercial air traffic has been boosting commercial OEM as well as commercial aftermarket sales for RTX in recent times. This must have encouraged stakeholders to stay invested in this stock, further corroborated by the solid share price return offered year to date.
Keeping up with this trend, RTX’s Collins Aerospace unit registered a 7% year-over-year improvement in its third-quarter 2024 top-line performance, partially driven by a 9% improvement in commercial aftermarket sales. On the other hand, a 13% rise in commercial aftermarket and a 9% improvement in commercial OEM sales resulted in a 14% rise in adjusted sales for RTX’s Pratt & Whitney unit. Continued growth in commercial air traffic, including higher flight hours and a favorable OEM mix in Large Commercial Engines, primarily boosted the improvement in commercial aftermarket and OEM sales.
Will RTX Stock Continue With Its Growth Streak?
Looking ahead, growth prospects for the commercial aerospace market and RTX’s commercial business remain bright. As per the International Air Transport Association’s (“IATA”) latest report published in June 2024, air revenue passenger kilometers (RPKs) are projected to improve 11.6% in 2024 from the 2023 level. This should boost the demand for new aircraft, strengthening commercial OEM as well as commercial aerospace aftermarket sales for RTX in the coming days.
Moreover, as a prominent U.S. defense contractor, RTX enjoys a steady flow of orders for its combat-proven defense products, particularly missiles and radars. Such order growth culminates into notable booking and backlog count, which, in turn, boosts the company’s revenue generation prospects. Notably, RTX witnessed a solid defense backlog of $90 billion as of Sept. 30, 2024. The figure came in much higher than its backlog of $77 billion at the end of the second quarter of 2024.
Such solid revenue generation prospects from its commercial aerospace and defense businesses bolster earnings growth projections for this stock. In line with this, the Zacks Consensus Estimate for RTX’s long-term earnings growth rate is pegged at a solid 10.2%.
A quick sneak peek at its near-term earnings and sales estimates mirrors a similar picture.
RTX’s Upbeat Estimates
The Zacks Consensus Estimate for fourth-quarter revenues and earnings reflects a solid improvement of 3.3% and 5.4%, respectively, from the prior-year quarter’s levels.
The annual estimate figures also indicate a similar picture. The Zacks Consensus Estimate for 2024 earnings suggests an improvement of 9.5% from the 2023 level, while that for revenues implies a surge of 7.2%. The 2025 estimates also reflect similar growth trends.
Risks to Consider Before Choosing RTX
Despite the aforementioned growth opportunities, there remain certain risks to investing in RTX. One notable headwind plaguing stocks like RTX that operate in commercial aerospace is the supply-chain issue.
Notably, the global supply-chain disruption that was exacerbated during the COVID period still remains a major challenge affecting global trade and, thereby, the aerospace sector. To this end, the IATA announced in its June 2024 report that an inventory of 38.7 million flights is expected to be available in 2024. This reflects a decline of 1.4 million flights from its previous estimate made in December 2023.
The decline can be largely attributed to the slowing pace of deliveries in the face of persistent supply-chain issues in the aerospace sector. This, in turn, might cause RTX to experience failure in delivering its finished products to its customers within the stipulated time. Since its Pratt & Whitney is a major supplier of commercial jet engines, the failure can adversely impact its revenue generation prospects.
Moreover, steadily increasing jet fuel price tends to put cost pressure on airlines, which may then be compelled to reduce their orders for new aircraft from jet manufacturers. This, in turn, may adversely impact the future performance of commercial OEM producers like RTX.
RTX Trading at a Premium
In terms of valuation, RTX’s forward 12-month price-to-earnings (P/E) is 20.29X, a premium to its peer group’s average of 19.12X. This suggests that investors will be paying a higher price than the company's expected earnings growth compared to that of its peers. RTX’s P/E also looks stretched when compared to its five-year median.
Should You Buy or Hold RTX Now?
Investors interested in RTX should wait for a better entry point, considering its premium valuation.
However, those who already own this Zacks Rank #3 (Hold) company may stay invested, as its upbeat estimates, steadily improving commercial air traffic and rising demand for defense products offer solid growth prospects.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.