RTX Analysis: The $272 Billion Defense Giant Generating Record Free Cash Flow as Global Rearmament Accelerates

RTX trades at 40.9x trailing earnings, placing it between Lockheed Martin's more modest 30.6x P/E and Boeing's crisis-inflated 91.4x multiple. On a price-to-book basis, RTX sits at 3.78x, while its enterprise value-to-EBITDA ratio of 72.9x appears elevated largely because of the company's significant intangible assets from the 2020 Raytheon-United Technologies merger.

The more meaningful valuation lens is free cash flow. RTX generated $7.94 billion in FCF during fiscal 2025, giving it an FCF yield of approximately 2.9% at today's market cap. That compares favorably to the S&P 500 average FCF yield and reflects a business that is converting its massive revenue base into real cash at an accelerating rate. The company returned $3.57 billion in dividends and repaid $3.43 billion in debt during 2025, demonstrating disciplined capital allocation.

By market capitalization, RTX at $272 billion dwarfs both Boeing ($178.7 billion) and Lockheed Martin ($152.3 billion). This size advantage reflects RTX's diversified revenue streams across commercial aerospace (Pratt & Whitney, Collins Aerospace) and pure defense (Raytheon), giving it a broader addressable market than any single-segment competitor.

RTX's fiscal 2025 revenue trajectory tells a compelling growth story. Quarterly revenue climbed steadily from $20.3 billion in Q1 to $21.6 billion in Q2, $22.5 billion in Q3, and $24.2 billion in Q4 — representing 19.4% sequential growth from the first quarter to the fourth. Full-year revenue of approximately $88.6 billion marks a significant step-up from prior years.

Diluted EPS followed a similar upward trend through the first three quarters — $1.14 in Q1, $1.22 in Q2, and $1.41 in Q3 — before pulling back to $1.19 in Q4. The Q4 earnings dip despite record revenue reflects higher research and development spending ($789 million vs. $684 million in Q3) and increased SG&A costs ($1.64 billion vs. $1.44 billion), suggesting RTX is investing heavily in next-generation defense systems and scaling its commercial aftermarket business.

Gross margins held relatively stable throughout the year, ranging from 19.5% to 20.4%, which is characteristic of a defense prime contractor where long-term fixed-price contracts create predictable but modest margin profiles. Operating margins averaged approximately 10%, consistent with the industry norm for large defense integrators.

The headline financial story for RTX in 2025 is free cash flow. The company generated $7.94 billion in FCF, a 75% increase from $4.53 billion in 2024 and the highest in the company's post-merger history. Operating cash flow of $10.57 billion funded $2.63 billion in capital expenditures while still leaving ample room for shareholder returns and balance sheet repair.

RTX used this cash generation to meaningfully de-lever its balance sheet. The company repaid $3.43 billion in debt during 2025, reducing its debt-to-equity ratio to 0.61x from 0.70x at mid-year. Net debt-to-EBITDA remains elevated at 8.4x due to the legacy merger-related intangibles, but the trajectory is clearly improving. Interest coverage strengthened to 7.0x in Q4, up from 4.1x in Q1, providing a comfortable margin of safety.

The balance sheet shows $7.47 billion in cash at year-end 2025, up from $5.61 billion a year earlier. This growing cash position, combined with the $3.57 billion annual dividend ($2.68 per share, yielding 1.3% at current prices), positions RTX as a reliable capital returner even as it invests in growth.

RTX's competitive advantage lies in its three complementary business segments, each with distinct growth drivers and barriers to entry. Pratt & Whitney manufactures jet engines for commercial and military aircraft, including the F135 engine powering the F-35 Lightning II — the backbone of Western air forces. Collins Aerospace produces avionics, mission systems, and mechanical components embedded in virtually every major aircraft platform. Raytheon builds missiles, air defense systems, and advanced sensors central to modern warfare.

This diversification is RTX's key differentiator. While Lockheed Martin derives the vast majority of its revenue from pure defense contracts and Boeing struggles with commercial aircraft production issues, RTX benefits from both the commercial aerospace recovery and the defense spending surge simultaneously. When airline travel rebounds, Pratt & Whitney's aftermarket engine services generate recurring revenue. When geopolitical tensions escalate, Raytheon's missile production ramps up.

The Iran military operations highlight RTX's relevance. Raytheon's Patriot and NASAMS air defense systems, Tomahawk cruise missiles, and Standard Missile family are all central to U.S. and allied operations. The company's backlog — while not broken out in the quarterly data — is widely reported to be at record levels, with multi-year order books for both air defense systems and next-generation missile programs. As MarketWatch noted, a massive backlog of maintenance and software contracts will ensure recurring revenue long after any single conflict ends.

Analyst consensus estimates project continued revenue and earnings growth through 2028. Quarterly revenue estimates for 2028 range from $24.9 billion in Q1 to $29.8 billion in Q4, implying annual revenue approaching $109 billion — a 23% increase from 2025 levels. Estimated EPS for 2028 quarters range from $1.81 to $2.57, suggesting annual earnings power of approximately $8.61 per share, which would bring the forward P/E down to roughly 23.5x on 2028 estimates.

The growth drivers are well-identified. NATO's renewed commitment to defense spending above 2% of GDP is creating sustained demand across all three RTX segments. The European defense buildout — particularly in missile defense and fighter aircraft — represents a multi-decade opportunity. Commercially, the aviation aftermarket continues to grow as the global fleet ages and air travel demand exceeds pre-pandemic levels.

The primary risk is valuation compression. At 40.9x trailing earnings, RTX is priced for execution. Any stumble in margin expansion, a slowdown in defense spending growth, or broader market rotation away from defense names could trigger a pullback. The stock's 80% rally from its 52-week low means much of the good news is already reflected in the share price. RTX's next earnings report is scheduled for April 22, 2026, which will provide the first look at how Q1 2026 is tracking against the elevated expectations.

For long-term investors, RTX's combination of defense exposure, commercial aerospace upside, and record free cash flow generation makes it the most balanced play in the defense sector. The valuation demands patience — this is not a deep value opportunity — but the business quality and secular tailwinds justify a premium over historical averages.