Bank of America upgrades RTX Corp to reflect better service execution

Bank of America upgraded RTX Corp. (RTX) to a Neutral rating (From Underperform) and raised their 12-month price target on the defense company to $100.00 (From $78.00) to reflect a “better than expected execution in servicing contaminated powder-metal discs in Geared Turbo Fan (GTF) aircraft engines.”

“While Raytheon defense will likely continue to be pressured, recent restructuring and management changes give us more confidence in a turnaround of that business in 2025.” Wrote analysts in a note.

RTX has announced that all original equipment (OE) GTF engines, including spare parts, are now being delivered with clean full-life discs, and they will not be affected by the powder-metal issues. Some maintenance, repair, and overhaul (MRO) customers have received full-life discs earlier than initially expected, with certain customers having already replaced the discs or conducted checks to extend engine life.

RTX anticipates a lower Aircraft on Ground (AOG) count than the initially projected peak of 650, providing Pratt & Whitney (P&W) and airlines with more options to mitigate the impact, such as increased MRO capacity for necessary replacements and checks.

While potential risks, including further FAA directives and future aftermarket profitability of GTF engines, persist, there is a positive sentiment regarding P&W’s current execution.

Bank of America revised Pro-forma adjusted EPS estimates to $5.40 for 2024, $6.15 for 2025, $6.70 for 2026, and $7.25 for 2027.

Shares of RTX are up 1.02% in early trading Thursday morning.