RTX Has a $289 Billion Backlog and Just Raised Guidance. So Why Is the Stock Down 15% From Its High?

Key Stats for RTX Corporation

• 52-Week Range: $155.64 to $226.88
• Street Target Price: $234.41
• Market Cap: $259B
• LTM Gross Margin: 20.3%
• LTM EBIT Margin: 12.3%
• Fwd 2-Yr Revenue CAGR: ~8%
• Fwd 2-Yr EPS CAGR: ~12%
• Dividend Yield: 1.5%

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A Record Quarter That the Market Quickly Forgot

RTX Corporation (RTX) runs three businesses that together cover much of what keeps modern militaries equipped and commercial aircraft flying.

Raytheon makes missiles, munitions, and radar systems. Pratt & Whitney designs and manufactures aircraft engines, including the GTF engine that powers a large share of the narrow-body commercial fleet.

Collins Aerospace handles avionics, cabin systems, and the countless components that go into both military and commercial aircraft. It is a genuinely diversified industrial platform, and in Q2 2026, it posted results that were hard to argue with across the board.

Sales came in at $24.7B, up 16% organically and nearly 8% ahead of what analysts had modeled. Adjusted EPS of $1.89 beat the $1.66 consensus by 14%.

Free cash flow reached $2.9B in the quarter alone. Management raised full-year adjusted sales guidance to $95B to $96B, EPS to $7.10 to $7.25, and FCF to $8.5B to $8.75B.

The backlog hit a record $289B, up 22% year over year, with Raytheon posting a book-to-bill ratio of 2.4, meaning it booked $2.40 in new orders for every dollar it shipped. The stock jumped 7.3% on earnings day.

The drawdown chart shows what happened next. The Q2 beat pushed RTX toward $227, fully recovering the spring drawdown and briefly touching near-zero territory in late July and early August.

Then two things hit at once: management flagged an estimated $850M in tariff headwinds for the year, and signs of a potential US-Iran ceasefire started reducing some of the geopolitical premium that had been supporting defense stocks broadly.

RTX now sits at a 14.77% drawdown from its year high, almost entirely giving back what the Q2 beat had delivered. For a stock with a beta of 0.29, that kind of move in either direction is not routine.

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What a $289 Billion Backlog Actually Means

The backlog number is worth sitting with for a moment. At $289B and still growing, RTX has more than ten quarters of revenue already contracted at the current run rate.

The $119B defense portion reflects sustained demand for missiles, munitions, and radar systems across NATO members that are still in the early stages of rebuilding military capacity, while the $170B commercial portion reflects the ongoing recovery in global air travel and the enormous maintenance cycle tied to the GTF engine fleet.

The first domestic GEM-T missile order in over 30 years landed in Q2, a concrete signal of how much the defense demand environment has shifted.

The FCF chart gives that backlog some financial context. Free cash flow held in a steady range around $4.9B in 2021 and 2022, improved to $5.5B in 2023, then compressed to $4.5B in 2024 as the company worked through costs related to the Powder Metal Matter, a quality issue affecting certain Pratt & Whitney GTF engines that required significant inspection and remediation programs across the fleet.

The jump to $7.9B in 2025 reflects the business returning to its natural FCF generation capacity once those charges worked through the financials.

Full-year 2026 guidance of $8.5B to $8.75B would be another meaningful step higher and funds the dividend, debt reduction, and whatever capital return program management chooses to run alongside it.

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What the Valuation Looks Like After the Pullback

At 26x forward earnings, RTX is not inexpensive by historical defense sector standards. The Street’s consensus target sits around $234, implying roughly 22% upside from here, with most analysts constructive on the backlog visibility, FCF trajectory, and continued defense demand.

The 1.5% dividend yield adds a modest income component while investors wait for the gap between the current price and analyst targets to close.

The TIKR valuation model’s mid case lands at a price target of around $243 over the next 4.3 years, implying roughly 26% in total return at around 5.7% annualized. Revenue grows around 5.7% annually, net income margins expand toward 11%, and EPS grows around 7% per year.

The P/E compression assumption of around 2.5% annually is the primary drag, reflecting a market that will likely reprice the multiple lower as growth normalizes from the current backlog-driven pace. Push the horizon to 2034, and the mid case reaches around $307 at roughly 6% annualized.

The honest gap worth acknowledging is between the model’s 5.7% annualized mid-case and the Street’s $234 target, which reflects real disagreement about how much of the backlog converts at expanding margins over time and how long the current geopolitical tailwind holds.

Should You Buy RTX Stock?

The bull case is about what the backlog implies for the next several years. A business with $289B in contracted revenue, FCF on track for $8.5B to $8.75B this year, three segments growing double digits organically, and a dividend that grows alongside earnings describes a durable compounder that tends to reward patient holders.

The pullback from $227 to $191 has created a meaningfully better entry point than existed two months ago, and the combination of defense spending tailwinds and the commercial aerospace recovery still has years of visible runway.

The bear case starts with the multiple. Paying 26x forward earnings for a defense and aerospace business leaves limited cushion if anything goes wrong, and the $850M tariff headwind is a real and growing cost that did not exist a year ago.

The geopolitical premium that carried the stock higher is not guaranteed to stay in place, and a genuine ceasefire or pullback in European defense budgets could compress the multiple faster than the backlog can offset it.

The valuation model’s 5.7% annualized mid-case is an honest assessment of a business executing well at a price that already reflects quite a bit of good news.

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!