Shares of RTX (NYSE: RTX) surged to a new all-time high following the release of its latest quarterly earnings. The defense and aerospace company beat expectations with management citing "unprecedented demand" across its product portfolio.
Long-time investors have a lot to be cheering about with shares of RTX up about 39% this year. On the other hand, investors on the sidelines might be wondering if it's too late to climb aboard this rocket.
Here's why I believe the rally in RTX can continue.
RTX is flying high in 2024
Second-quarter adjusted earnings per share (EPS) of $1.41 (for the period ended June 30) were up 9% from the prior-year quarter, and $0.11 ahead of the average Wall Street estimate. Revenue of $19.7 billion increased by 8% year over year, or 10% on an organic basis adjusting for foreign exchange and divestitures.
An effort by RTX to generate cost synergies and financial efficiencies through its Customer Oriented Results and Excellence (CORE) operating initiatives appears to be paying off. The adjusted segment margin of 11.7% climbed from 10.7% last year. That includes not only improved productivity but also a favorable pricing mix and higher volumes as an indication of healthy operating conditions.
The Pratt & Whitney group stood out with a 19% increase in sales, capturing commercial and military customers. Separately, RTX cited a rebound in the aftermarket-parts business driving the Collins Aerospace result. The Raytheon segment is booking large contract awards with strong demand in land and air defense systems from customers like the U.S. Navy and U.S. Air Force.
Overall, it was a solid quarter with the top-line strength from the three key business segments adding to profitability and free cash flow. The companywide order backlog reached a record $206 billion, up from $185 billion in the second quarter of 2023.
RTX projected confidence in the outlook by increasing the 2024 organic sales growth guidance to an 8%-to-9% range compared to a prior 7.5% midpoint estimate. Management now expects full-year EPS between $5.35 and $5.45, representing a 7% increase from 2023 and up compared to the $5.25 to $5.40 range announced earlier this year.
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RTX bets on artificial intelligence
Beyond the headline numbers, the attraction of RTX as an investment is its diversified leadership position as a premier defense contractor while playing a crucial role in commercial aviation.
The company's opportunity is to both consolidate market share and shift its product portfolio toward more value-added categories. A major theme for RTX is its ongoing digital transformation with a renewed focus on next-generation technologies.
Comments by Chief Executive Officer Chris Calio have highlighted how integrating artificial intelligence (AI) and machine learning will add to the earnings runway. In the second-quarter earnings conference call, Calio said:
We also continue to invest in our digital transformation and AI. This year, we are adding an additional 30-plus use cases that generate incremental productivity and cost savings across RTX using advances in artificial intelligence and deep learning...
Our AI investments are also enabling new and improved capabilities in our products, such as predicting equipment failures and aiding human operators in executing complex tasks.
Ultimately, the company's increasingly high-tech profile supports higher margins and a wider valuation premium. Shares of RTX are trading at 22 times management's 2024 EPS guidance. I believe this level is attractive given the growth momentum and long-term opportunities.
Room to stay bullish on RTX
The bullish case for RTX is that results over the next few quarters can again beat expectations, with an eye on the still-turbulent global geopolitical environment as an operating and financial tailwind.
It likely won't be a straight line higher, but I see a good chance for the share price to rally over the next year and deliver a positive return. For investors with a long-term time horizon, RTX is a great stock that can work in a portfolio.
Dan Victor has no position in any of the stocks mentioned. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy .
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