RTX

RTX is firing on its core thesis: net sales grew to $88.6B (+9.7%) and operating profit margin has nearly doubled in two years, from 5.2% in 2023 to 8.1% in 2024 to 10.5% in 2025, driving diluted EPS up 39.7% to $4.96 and net income up 41.0% to $6.73B. The MD&A confirms this is durable, not a one-off: total backlog (remaining performance obligations) jumped to $268B from $218B — roughly three years of revenue in firm orders across Collins, Pratt & Whitney, and Raytheon. Cash conversion is excellent, with operating cash flow up 47.6% to $10.6B against just $2.63B of capex, leaving ~$8B of free cash flow. This is a genuinely high-quality, recovering industrial franchise.

The problem is the price. At $185.60 the stock trades at 37.4x FY2025 EPS and 2.8x sales — a premium multiple for a business whose underlying economics remain modest (net margin 7.6%, ROE 10.3%). Crucially, the eye-catching ~40% earnings growth is largely a rebound off a depressed 2023 base (the year of the Powder Metal charge and a 5.2% margin), not a repeatable rate. Strip out the recovery optics and you are paying a high-30s multiple for a mid-single-digit-margin defense/aerospace compounder. The market has already capitalized the margin normalization and backlog visibility into the price.