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Jets

Raytheon Technologies: Technical & Fundamental Analysis

industrials investing strategies May 25, 2021

NEW: ðŸ“ˆ Technical Analysis!

The technical analysis as provided below hints at a clear upward trend:

Beta (5Y Monthly): 1.07

52 Week High: $87.04

52 Week Low: $51.66

50-Day Moving Average: $80.28

200-Day Moving Average: $72.86

The Beta of stock signifies the volatility of the stock prices as compared to the overall market (i.e. the Benchmark Index). A Beta of 1 indicates that (in theory) the stock prices moves exactly in the same direction as the Benchmark Index. Anything above 1 means higher volatility. RTX has a 5Y Monthly Beta of 1.07 - though this indicates slightly higher volatility (and therefore, risk), it is quite low, thereby assuring that the stock is a safe bet. So if the S&P 500 goes up 1% their risk and return should match it and vice versa.

The 50-Day moving average and 200-Day moving average indicate the price trend of the security for the medium-term and long-term respectively. When the moving average is below the current market price of the share, it indicates an upward trend in the prices of the shares. In this case, the 200-day moving average, as well as 50-day moving average are below the current share price ($83.78) which indicate the upward price trend to be expected in the future.

 

🚀 Know The Company

Market Sector: Industrial

Market Segment: Aerospace and Defense

Products: Commercial and Military Aerospace

Scope of Activity: Second Largest Defense Contractor of the US Government (post Raytheon-United Technologies Merger)

The present company Raytheon Technologies is the product of the amalgamation of the two equal giants United Technology Corporation and Raytheon Technologies Corporation. The company has four subsidiaries - Collins Aerospace Systems, Pratt & Whitney, Raytheon Intelligence & Space and Raytheon Missiles and Defense.

  • Pratt & Whitney is the leading supplier of aircraft engines for commercial, military, business and general aviation customers. It also produces turbo engines.
  • Collins Aerospace Systems provides advanced aerospace technologies globally. Currently, Collins Aerospace Systems is developing NASA's spacesuit, the Extravehicular Mobility Unit.
  • Raytheon Missiles and Defense provides a broad range of technologies related to air and missile defense systems, radars, precision systems and control systems to 30 countries.

 

🔑 Key Takeaways

  • Unlike many of the other stocks covered by us, Raytheon Technologies (RTX) is a well-established, long-living company whose stocks have seen quite a few surges and plunges. The figure below depicts the stock price history post 2000.
  • The Covid-19 pandemic dealt a huge blow specifically to the industries the company belongs to. As shown below, the stock prices of almost $100 at the start of the year 2020 plunged to ~$53 in October 2020, almost getting halved in these 10 months! (PLEASE note that there was a share split in April 2020, which would theoretically reduce the stock prices. Despite this, the market has been bullish about the stock since the start of this year - the prices have surged ~20% YTD from $70 to $85.

 

📊 By The Numbers

 

It may be kept in mind that Q1 2020 was partially plagued by the pandemic. The consolidated revenue of the company (with its subsidiaries) surged ~34% YoY. Despite this, the operating income fell by 22%, primarily due to the higher cost of production per dollar of revenue (65% of revenue in 2021 vs 58% in 2020). The EPS of the company became positive, from negative $0.10 per share to $0.50. However, the EPS from continuing operations has been largely unchanged. In other words, the negative EPS in 2020 was due to extraordinary events (discontinued operations), and not the ordinary continuing operations. This is good news as the loss was largely due to events that will not occur in the future - something that you need to look at as the numbers themselves don't always tell the true story at first glance.

Additionally as per the companies annual report, the company derives its maximum revenue from the sale of defense products and services (61%). The United States alone accounts for 61% of geographical sales, followed by Europe (16%) and the Asia Pacific (13%). With the US leading the charge, RTX will likely continue to win contracts at scale. The main reason for this is the US spends more money on military defense than any other country in the world. With this large spend, we can project RTX's revenue stream to be sticky into the foreseeable future.

 

💰 Fundamental Analysis

In conclusion, we strongly believe that along with the more exciting growth stocks, having well established, firmly footed stocks in your profile is always a wise decision. Raytheon Technologies has been in a very firm position in its industry and has been a major partner of the US defense (which has a greater budget than the next few defense forces combined!) for ages. Add to that the fact that with the gradual opening of world boundaries, the air travel industry is bound to surge. We feel that this is the right time to invest in this company from both growth and dividend perspectives.

 


 

Ticker: RTX

Rating: Overweight

Target Price: $100

Target Date: 12 Months

Market Cap: ~$131 Billion

Current Price (May 24, 2021): $87