According to one Wall Street expert's assessment, the potential for RTX stock increases by 31%.
In a recent analysis, a Wells Fargo expert decided to raise their price target for RTX stock from $140 to an impressive $151, keeping their "overweight" rating intact. This new target suggests a whopping 31% premium over the current price, but is it justified?
Reasons to Invest in RTX Stock
The consensus among Wall Streeters predicts RTX will generate $8.4 billion in free cash flow by 2026. Given RTX's current market cap of $153 billion, this would see the company secured on a price-to-free-cash-flow multiple of 18.2 times 2026 free cash flow. The Wells Fargo analyst, not surprisingly, shares similar sentiments about RTX's valuation.
However, some of RTX's aerospace and defense peers have managed to secure much higher price-to-free-cash-flow multiples. If RTX manages to soar to the sky and reach the impressive $151 target, it'd find itself boasting a price-to-free-cash-flow multiple of just under 24 times 2026 free cash flow.
The bulls have been steadfast in their belief in RTX. The company's aerospace sector successfully navigated the GTF engine inspections hurdle, while impressive aftermarket sales helped compensate for weak original equipment sales due to a disappointing start for Boeing and Airbus aircraft production. Meanwhile, RTX's defense division has seen its adjusted operating profit margins stubbornly improve in every quarter of 2024 so far.
Is RTX Stock Worth Buying?
Valuation isn't everything in investing, and the current market conditions pose some challenges. The defense industry is grappling with the US government's insistence on imposing fixed-price development programs on companies. Moreover, the industry's future looks uncertain, as traditional single-digit growth may be upended if spending levels don't continue to rise.
If you're convinced that RTX's defense business will soon return to its low single-digit growth days, you might want to give this valuation a wide berth.
The $151 target represents a significant premium, and the industry's challenges should count for something. Yet, the impressive performance of RTX and the potential for the semiconductor industry mean that the bulls could have a solid case to make.
Incorporating enrichment data, we discover that, as of February 1, 2025, the stock is trading at $129.17, with CoinCodex predicting a rise to $142.92 by March 3, 2025. This supports the bullish case, as the current market conditions and RTX's impressive performance may push the stock towards the lower ends of Wells Fargo's target range.
The increase in Wells Fargo's price target for RTX stock to $151 indicates a strong belief in its financial potential, providing an opportunity for investors who are interested in finance and considering investing in RTX. If RTX manages to reach this target, its price-to-free-cash-flow multiple would be significantly higher than its current peers, showcasing the potential financial gains in investing in this company.
