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This article first appeared on GuruFocus.

RTX Corporation (formerly Raytheon Technologies) is one of the world’s largest aerospace and defense companies, created through the merger of Raytheon and United Technologies. The company operates through three major segments: Collins Aerospace, which supplies aircraft systems, avionics, and interiors; Pratt & Whitney, known for its advanced jet engines and geared-turbofan technology; and Raytheon, a global leader in defense electronics, missile systems, radar, and intelligence solutions.

This dual-engine structure, balancing commercial aerospace with defense and government programs, gives RTX a uniquely diversified revenue base. The commercial side captures cyclical growth tied to global air travel and fleet modernization, while the defense portfolio provides steady, long-term cash flows supported by government budgets and multi-year contracts. This blend offers resilience through market cycles and positions RTX as a rare large-cap player with both growth and stability within the aerospace-defense sector.

RTX posted another strong quarter, with adjusted revenue of US$22.48 billion, up roughly 12 % year-on-year and ahead of consensus estimates of about US$21.3 billion. Organic growth stood at approximately 13 %, reflecting broad-based momentum even after accounting for divestitures. Adjusted EPS rose 17 % to US$1.70 versus US$1.45 in Q3 2024, while GAAP EPS came in at US$1.41, including about US$0.29 in acquisition-related adjustments. Free cash flow more than doubled to US$4.0 billion, underscoring improved execution and working-capital efficiency.

The company’s backlog climbed to a record US$251 billion, of which US$148 billion is from commercial programs and US$103 billion from defense, providing multi-year revenue visibility. Collins Aerospace delivered US$7.62 billion in sales (+8 %) and US$1.19 billion in operating profit (+9 %), supported by strong commercial OE (+16 %) and aftermarket (+13 %) growth. Pratt & Whitney reported US$8.42 billion in sales (+16 %) and US$751 million in profit (+26 %), led by a 23% surge in aftermarket and 15% military growth. Raytheon posted US$7.05 billion in sales (+10%) and US$859 million in profit (+30%), driven by robust demand across land, air, and naval defense programs.

Reflecting this performance, management raised full-year 2025 guidance. Adjusted sales are now expected to be between US$86.5 and 87.0 billion (up from US$84.7585.5 billion), and adjusted EPS to be between US$6.10 and 6.20 (up from US$5.805.95), while maintaining free cash flow guidance at US$7.07.5 billion.

RTX’s growth momentum remains strong across both commercial and defense segments. Collins Aerospace posted 16% OE and 13% aftermarket growth, reflecting a sustained aviation rebound, rising MRO activity, and airlines’ push for fuel-efficient upgrades. On the defense side, Raytheon secured about US$37 billion in new awards, lifting the total backlog to a record US$251 billion. Heightened global tensions and steady defense spending continue to support demand for RTX’s missile, radar, and command-and-control systems. With smoother production, supply-chain normalization, and stronger backlog conversion, management’s raised sales and EPS guidance underscores improving execution and free-cash-flow visibility through 2026.

That said, RTX still faces margin and execution risks. Input-cost inflation, especially in metals and electronics, could pressure profitability, while Pratt & Whitney’s rapid ramp-up in engine programs raises supply-chain and quality-control challenges. The commercial aviation rebound also remains cyclical and exposed to macro volatility. Even so, RTX enters the next phase from a position of strength, supported by solid demand, rising efficiency, and consistent FCF generation. If it sustains this operational rhythm, the premium valuation appears warranted, cementing RTX’s place among the most balanced and resilient aerospace and defense players globally.

Global defense spending continues to rise, giving RTX a durable structural tailwind and long-term earnings visibility. With defense budgets expanding across the U.S., Europe, and Asia, RTX’s Raytheon division stands to benefit from its leadership in missile defense, radar, and command-and-control systems. The company’s US$37 billion in new awards during Q3 and a record US$251 billion backlog highlight its deep integration in next-generation defense platforms and multi-year contracts that enhance revenue predictability and cash-flow resilience. On the commercial side, the aviation recovery is led by fleet modernization in Asia and India is driving sustained growth for Pratt & Whitney’s GTF engines and Collins Aerospace’s avionics and systems. This blend of cyclical commercial exposure and steady defense revenues gives RTX rare diversification and stability among aerospace peers.

Looking ahead, RTX’s focus on technology innovationhybrid-electric propulsion, next-gen missile systems, and digital avionics, adds optional upside to its intrinsic value. The path forward hinges on flawless execution: timely backlog conversion, operational efficiency, and continued R&D leadership. RTX’s premium valuation reflects high confidence in its ability to deliver; maintaining that trust will depend on consistent performance and disciplined capital allocation in both its commercial and defense businesses.

Lockheed Martin (NYSE:LMT): Similar Scale, Lower Growth, Higher Cash Efficiency

Lockheed Martin remains RTX’s closest peer in scale and end-market exposure, though its revenue base leans more purely toward defense programs. In Q3 FY2025, Lockheed reported US$18.6 billion in sales (+9% YoY) and free cash flow of US$3.3 billion, representing an FCF margin near 17%. RTX outpaced Lockheed in both top-line growth (+12%) and cash generation (+104% YoY), signaling stronger post-pandemic commercial recovery leverage through Collins Aerospace and Pratt & Whitney. However, Lockheed’s backlog of US$179 billion remains highly defense-concentrated, offering steadier predictability and less exposure to commercial cyclicality. Its ROIC (~13%) is higher than RTX’s mid-single-digit level, indicating more efficient capital allocation. While RTX shows higher momentum in revenue and FCF efficient operator.

General Dynamics (GD): Stable Performer, Lower Growth but Leaner Valuation

General Dynamics is a diversified defense contractor spanning aerospace (Gulfstream), combat systems, marine systems, and IT services. For the same quarter, GD delivered ~US$11.5 billion in revenue (+6% YoY) with operating margins around 10%, roughly half of RTX’s growth rate. Its backlog stood near US$93 billion, materially smaller than RTX’s US$251 billion. The primary difference lies in exposure, GD’s business model is heavily defense-weighted with corporate aviation as the only cyclical leg. RTX’s mix gives it greater near-term growth potential but also higher volatility. In valuation terms, GD trades near 19 forward earnings, well below RTX’s 29, reflecting investor preference for RTX’s growth narrative but also GD’s stronger value case. Compared to GD, RTX offers superior organic expansion and margin recovery potential, though at a much higher multiple that assumes flawless execution.

Northrop Grumman (NOC): Margins Lead, Growth Lags

Northrop Grumman reported ~US$10.5 billion in Q3 sales (+7% YoY), with an operating margin of ~11% and a backlog near US$78 billion. Its growth pace trails RTX, but Northrop continues to lead in margin quality and contract profitability. The company’s exposure to classified programs and missile defense yields a steadier earnings base but limits growth acceleration in the near term. RTX, by contrast, enjoys both defense growth and a commercial aerospace rebound, giving it a broader runway for double-digit revenue expansion. However, that same dual exposure also brings higher cyclicality and integration risk. While Northrop’s FCF yield (~3.5%) is below RTX’s post-Q3 run-rate (~4.5%), its lower volatility and balanced contract structure keep it favored among conservative defense investors. Overall, RTX’s growth leadership comes at the expense of higher expectations and a premium valuation versus NOC’s steadier, more predictable model.

From a capital discipline standpoint, RTX’s return on invested capital (ROIC) of roughly 89% sits broadly in line with Lockheed Martin (~9%) and General Dynamics (~8%), indicating comparable cash efficiency rather than clear outperformance. This parity underscores that the current valuation premium is rooted more in growth expectations than in any structural capital-return advantage.

In relative terms, RTX is outgrowing all major U.S. defense peers, expanding its top line faster and showing stronger near-term free-cash-flow momentum. Its US$251 billion backlog also surpasses peers both in size and diversification. However, the company’s forward P/E of ~29 versus peer averages of 1921 reflects that the market already prices in superior execution, margin recovery, and steady cash conversion. The trade-off is clear: RTX’s commercial leverage offers cyclical upside, while Lockheed, GD, and NOC represent steadier but slower compounding models. For investors seeking growth within aerospace and defense, RTX remains the sector leader; for value and stability, its peers may offer better entry risk-reward at current multiples.

Notably, GuruFocus data indicates relatively limited involvement from well-known value investors in RTX at present. While large institutions and index funds maintain sizable passive holdings, few high-conviction value managers, such as Warren Buffett (Trades, Portfolio), Seth Klarman (Trades, Portfolio), or Tom Gayner (Trades, Portfolio), hold material positions. In contrast, peers like Lockheed Martin and General Dynamics feature more prominent ownership among long-term value funds. This muted participation suggests that while the market is pricing RTX for growth, disciplined value investors may be waiting for a more attractive entry point or greater proof of sustained free-cash-flow expansion before committing capital.

RTX’s latest results reaffirm its position as one of the most balanced and execution-driven players in global aerospace and defense. Its integrated commercialdefense model, blending Pratt & Whitney’s propulsion innovations, Collins Aerospace’s avionics, and Raytheon’s defense systems, enables technology sharing and scale efficiencies that few peers can replicate. In capital terms, RTX’s ROIC of around 89% remains comparable to peers like Lockheed Martin and General Dynamics, reflecting disciplined but not superior efficiency. This makes growth execution, rather than margin dominance, the critical driver of future value. Interestingly, GuruFocus data shows relatively limited participation from well-known value investors, which could help explain the valuation stretch, a market that’s confident in growth but cautious on cash realization.

With shares trading near 29 forward earnings, RTX’s valuation assumes continued backlog conversion, double-digit EPS growth, and expanding free cash flow. If the company sustains these trends, its intrinsic value could converge toward the upper end of the $195225 range. But given the high expectations, even minor execution shortfalls could trigger multiple compressions. RTX remains a high-quality compounder with durable tailwinds, but at current levels, conviction requires faith in flawless delivery rather than undervaluation.