Why RTX Stock Popped Today

Key Points

• RTX beat on sales and beat on earnings yesterday, but guidance disappointed and investors sold off the stock.

• Today, Wall Street rode to RTX's defense, raising price targets across the board.

• RTX stock looks expensive even without the lowered guidance.

• 10 stocks we like better than RTX ›

A funny thing happened to RTX Corporation (NYSE: RTX) yesterday -- meaning funny-strange. RTX reported 9% sales growth in its fiscal second-quarter earnings report, and beat analyst forecasts with $1.56 per share earned on revenue of $21.6 billion.

The stock fell 1.6%.

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Why Wall Street loves RTX stock

Investors seemed upset that RTX's guidance didn't measure up to expectations yesterday. All seems forgiven on Wednesday, however, with RTX stock erasing Tuesday's losses and closing the day up 4.9%. For this, you can thank the Wall Street analysts who lined up to raise their price targets on the shares.

Tic-tac-toe, four in a row, everyone from Bank of America to UBS sang RTX's praises today. BofA slapped a $175 price target on the stock, lowering its 2025 forecast but insisting that "outyear estimates" remain strong.

Susquehanna Research agrees that $175 is the right price. It noted that the effect of tariffs is baked into guidance for earnings of $5.80 to $5.95 this year. UBS and RBC took, respectively, the over and under, with RBC saying RTX stock is worth $170 a share, and UBS guessing $177 -- and calling the stock's valuation "attractive."

Is RTX stock a buy?

Call me a cynic, but I just don't see things that way. Beyond guidance, when I look at RTX stock, I see a defense company earning $6.1 billion in net profit over the past year -- but generating less than $3.2 billion in positive free cash flow.

It's bad enough that the stock costs 34 times trailing earnings, but a valuation of 65.5 times free cash flow is just plain ridiculous on a defense stock with a sub-2% dividend yield and a long-term growth rate below 10%.

Much as I like the company, there's simply no way I'd buy RTX stock at these prices.

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Bank of America is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends RTX. The Motley Fool has a disclosure policy.