Everyone Wants Defense Stocks — But Does RTX Pass Buffett's Test?

What Is RTX Corporation?

RTX Corporation — formerly known as Raytheon Technologies — is one of the largest aerospace and defense companies in the world, with $88.6 billion in 2025 revenue and operations spanning commercial aviation, military systems, and advanced defense technology. The company was formed in 2020 through the merger of United Technologies and Raytheon, creating a diversified platform with three core business segments: Collins Aerospace, Pratt & Whitney, and Raytheon.

Collins Aerospace is a leading provider of avionics, cabin interiors, and aircraft systems for both commercial and military platforms. It generated $30.2 billion in 2025 sales at a 16.2% adjusted operating margin, making it the highest-margin segment in the portfolio. Pratt & Whitney designs and manufactures aircraft engines, most notably the GTF (Geared TurboFan) family that powers the Airbus A320neo family and Bombardier business jets. It contributed $32.9 billion in sales at an 8.3% margin — the lowest of the three, largely due to ongoing costs related to its engine remediation program. Raytheon is the defense electronics and missiles division, supplying air defense systems (including Patriot and NASAMS), precision munitions, radar, and electronic warfare equipment to the U.S. military and allied governments. It generated $28.0 billion in 2025 sales at an 11.5% margin.

RTX's competitive position is formidable. It occupies a near-irreplaceable position in the defense industrial base, supplies engines to roughly half of all commercial narrowbody aircraft flying today, and holds a $268 billion total backlog — $161 billion commercial and $107 billion defense — that provides multi-year revenue visibility. That backlog is the highest in the company's history, representing more than three years of forward revenue at the current run rate.

How RTX Scores on All 9 Buffettology Criteria

RTX earns a 4/9 on the Buffettology scoring system. It's a company with genuine scale, a strong franchise, and improving financials — but several structural characteristics keep it from clearing Buffett's bar. Here's how each criterion breaks down.

1. High Return on Equity — FAIL (~10%)

Buffettology requires ROE consistently above 12%. RTX's 2025 net income of $6.73 billion against shareholders' equity of $67.1 billion produces an ROE of roughly 10% — below the threshold. Much of RTX's equity base is bloated by goodwill and intangible assets from the 2020 merger, which depresses the ratio. While the underlying business is productive, the legacy of a massive acquisition makes it harder to clear this bar on reported numbers.

2. High Return on Invested Capital — FAIL

ROIC measures how efficiently total capital — debt and equity — is being deployed. With significant goodwill on the balance sheet from the UTC/Raytheon merger and ongoing capital spending required to run three large industrial businesses, RTX's ROIC comes in below the 9% Buffettology threshold. Defense and aerospace are inherently capital-intensive, which works against this metric.

3. Cash Machine — PASS

RTX's free cash flow generation is a genuine strength. The company produced $7.9 billion in FCF in 2025 — a $3.4 billion year-over-year improvement — and is guiding for $8.25 to $8.75 billion in 2026. For a manufacturer of aircraft engines and missile systems, that's a substantial cash conversion ratio. The business earns real cash, and it's growing.

4. Fair Valuation (Earnings Yield) — FAIL

At a P/E of roughly 39–42x, RTX's earnings yield is approximately 2.4% — well below the 3.5% Buffettology threshold. The stock has re-rated sharply higher over the past two years as defense budgets expanded and commercial aviation recovered. Investors are paying a premium for the backlog and growth visibility, but by Buffett's standards, the current price doesn't offer a margin of safety.

5. Share Buybacks — PASS

RTX has been reducing its share count through active buyback programs, a hallmark of shareholder-friendly capital allocation. The company consistently returns capital alongside a dividend, and management has expressed commitment to continued buybacks as free cash flow scales. This criterion checks clean.

6. Defensible Moat (Gross Margin) — FAIL

Buffettology looks for gross margins above 40% as a signal of durable pricing power. RTX, as an aerospace and defense manufacturer, runs gross margins in the 20–25% range. That's not a reflection of weak competitive position — Pratt & Whitney and Raytheon hold near-monopoly status on certain programs — but the cost structure of building jet engines and missile systems simply doesn't produce software-like margins. RTX's moat is more regulatory and technical than financial.

7. Simple Business — FAIL

Buffett famously favors businesses he can understand fully. RTX's three-segment structure involves long-cycle government contracting, complex engine certification programs, classified defense development, and intricate supply chain dependencies. The GTF powder metal issue — which grounded hundreds of aircraft and cost the company over $1 billion to remediate — illustrated just how much technical and operational complexity exists beneath the surface. This is not a simple business.

8. Conservative Debt — PASS

RTX's debt-to-equity ratio of 0.59x as of year-end 2025 clears the 1.5x Buffettology threshold comfortably. Long-term debt has declined meaningfully — from $42.4 billion in 2023 to $34.3 billion in 2025 — as the company used its improving free cash flow to delever. At roughly 5x annual FCF, the debt is manageable, and the trajectory is clearly improving.

9. Consistent Growth — PASS

RTX's five-year net income trend shows meaningful growth — from approximately $4.1 billion in 2021 to $6.73 billion in 2025. Revenue has grown from the mid-$60 billion range to $88.6 billion over the same period. 2023 was a rough year (EPS dropped 36% due to Pratt & Whitney charges), which creates a blemish on the consistency record, but the overall arc of the business is growth. The 2026 outlook for 5–6% organic sales growth and $6.60–6.80 adjusted EPS adds further confidence in the trajectory.

The Bull Case

RTX's investment thesis is grounded in structural demand, not speculation. Here's what makes the bull case compelling:

The $268 billion backlog provides multi-year revenue certainty. With $161 billion in commercial orders and $107 billion in defense commitments, RTX has more forward revenue visibility than almost any industrial company in the world. This backlog is not theoretical — it's contractually committed demand, and it grew to a record level in 2025. As supply chain constraints ease through 2026, RTX's ability to convert that backlog into revenue and margin will be the primary earnings driver.

Defense spending is structurally elevated and unlikely to reverse. NATO members are under sustained pressure to increase defense budgets toward and beyond the 2% GDP target. European rearmament, Middle East demand for air defense, and U.S. military modernization all flow directly to Raytheon's missile and radar systems. The company's Patriot and NASAMS systems are in high demand globally, and recent multi-year U.S. government contracts have reinforced the defense revenue runway.

Pratt & Whitney's GTF Advantage solves the engine problem. The powder metal defect that plagued GTF engines has been addressed through the GTF Advantage, which entered full-scale production in 2026. The new engine extends time-on-wing, reduces the frequency of groundings, and positions Pratt & Whitney to restore commercial aviation relationships damaged by the remediation saga. With commercial air travel at record levels and airlines expanding fleets, aftermarket demand for engine maintenance is also surging — commercial aftermarket grew 25% in 2025.

Free cash flow is inflecting sharply higher. FCF grew $3.4 billion year-over-year in 2025, and the company is guiding to $8.25–8.75 billion in 2026. This trajectory supports continued debt reduction, growing shareholder returns, and strategic investment without financial strain. Analyst targets reflect this — Citi raised its target to $238, BofA and RBC to $230, and JPMorgan to $215 following Q4 2025 earnings.

Collins Aerospace benefits from aviation's structural growth. Commercial air travel continues to recover and expand globally. Collins supplies cockpit systems, cabin interiors, and aircraft connectivity across Boeing and Airbus platforms. With air passenger volumes at record levels and airlines undertaking fleet refreshes, Collins' high-margin aftermarket business has a long runway.

The Bear Case

RTX's strategic position is strong — but there are real risks that any investor should weigh honestly.

The valuation leaves little margin for error. At 39–42x trailing earnings, RTX is priced for continued execution. A DCF-based intrinsic value estimate from Simply Wall St puts fair value closer to $149 per share — roughly 24% below the February 2026 price of $196. If earnings growth disappoints, supply chain issues resurface, or defense budgets face unexpected cuts, the multiple could compress quickly.

The GTF engine issues aren't fully resolved. Aircraft-on-ground levels related to the powder metal matter are expected to remain elevated through 2026, with an estimated $1.1 to $1.3 billion annual cash impact. While the fix-forward plan is underway, it's a multi-year remediation with ongoing risk. If new technical issues emerge, the financial and reputational consequences would be significant.

Tariffs and trade policy create meaningful cost exposure. RTX has disclosed that tariffs on steel, aluminum, and global trade actions could cost approximately $500 million annually. As a company with complex global supply chains, it has limited ability to quickly re-shore production. Trade policy uncertainty is a real and ongoing headwind.

Government contract risk is structural. RTX derives a significant share of revenue from U.S. and allied government contracts that can be modified, delayed, or canceled. An executive order in early 2026 introduced new provisions around capital return restrictions tied to government performance assessments. If buyback capacity is constrained by regulatory requirements, shareholder return optionality is reduced.

Debt, while declining, remains elevated. $34.3 billion in long-term debt is a large balance — even with a 0.59x D/E ratio. The legacy of the 2020 merger still sits on the balance sheet, limiting financial flexibility compared to peers with cleaner capital structures.

Valuation Overview

RTX trades at approximately 39–42x trailing earnings as of early 2026, with a forward P/E in the mid-30s based on the 2026 EPS guidance range of $6.60–6.80. That compares to the Aerospace and Defense industry average of roughly 38x, placing RTX near the top of its peer group on earnings multiples.

The consensus analyst price target sits at $225, with a range of $179 to $240. Post-Q4 earnings, a number of analysts raised their targets: Citi at $238, BofA and RBC at $230, Jefferies and Baird at $225, and JPMorgan at $215. The consensus is Buy-leaning, with 13 Buy ratings, 6 Holds, and 3 Sells as of early 2026.

On a free cash flow basis, the picture looks somewhat better. With $8.25–8.75 billion in 2026 FCF guidance against a market cap of roughly $260 billion, the FCF yield is approximately 3.1–3.4% — not cheap, but more defensible than the P/E ratio alone suggests. Revenue is growing organically at 5–6%, and margin expansion is a realistic tailwind as Pratt & Whitney works through its remediation costs.

A DCF analysis using conservative assumptions — mid-single-digit revenue growth, stable margins, a modest terminal multiple — points to intrinsic value in the $149–180 range. By that framework, RTX is priced for above-average execution with limited downside cushion. Investors paying today's price are essentially making a bet on continued defense spending growth, commercial aviation tailwinds, and successful GTF resolution — all three simultaneously.

The Buffettology Verdict

RTX is a 4/9 company — and that score captures something real about the business. The franchise is genuinely strong: three defensible segments, a record backlog, improving free cash flow, and a declining debt load. These are the attributes of a durable enterprise.

But RTX doesn't clear Buffett's full test. The margins aren't wide enough, the business isn't simple enough, the return on capital is suppressed by merger-era goodwill, and at 40x earnings, the price doesn't offer the margin of safety that Buffett demands. A 4/9 score isn't a condemnation — it's an honest assessment of the trade-offs that come with a capital-intensive, government-contract-heavy, post-merger industrial company.

The bull case is real, the backlog is enormous, and the free cash flow trajectory is genuinely impressive. But for strict Buffettology adherents, RTX is a partial match — a high-quality business at a demanding valuation, not a clear-cut case.

Check RTX on Buffett Score

Want to see which criteria RTX passes and fails — and how it compares to other aerospace and defense names? Download the Vetted app to explore the full 9-criterion scorecard with expert commentary.