Reiterate buy rating on RTX with low conviction; strong order growth is offset by poor profitability metrics and expensive valuation.

Raytheon informed investors of a surge in orders for its products, especially from international customers. Raytheon secured nearly $20 billion in awards during its most recently completed quarter with international demand remaining exceeding $10 billion for the first half of the year, more than doubling from the same time last year.

And of course, that comes as no surprise as the war in Iran continues and partners of the United States in the region have depleted their munitions. United States, there's been rumors that it is also depleting its munitions.

Then you have the Russian war in Ukraine and all of these increasing geopolitical tensions with countries feeling less safe than they did is resulting in increasing demand for Raytheon's products.

But does all of this make it a buying opportunity? That's a whole other question. Let's take a deeper dive to answer. So over its most recent trailing 12-month period, Raytheon's revenue reached record levels at 93.5 billion.

The year has gone so well for Raytheon that it revised higher its revenue estimate for the full year, closer to $100 billion, whereas previously it was closer to $90 billion. The company's backlog has exceeded $250 billion and so it's investing in increasing its manufacturing capacity in order to deliver on that backlog more quickly.

Governments worldwide are asking Raytheon to please, please speed up production. We need your products, munitions, we need them and so Raytheon is investing to try and speed up its timeline of delivery.

It's becoming more urgent with several ongoing wars and existing wars expanding in size and scope.

So, sales are booming to be sure, orders are booming, but the issue with Raytheon and other defense contractors for that matter is they typically don't report strong operating profit margins.

And it's understandable, right? If you're the US government, you don't want to allow defense contractors like Raytheon to generate lucrative profit margins. How would that look with your citizens, right?

So, they typically work to keep a lid on profitability and profit margins,

and Raytheon has rarely delivered an operating profit margin exceeding 50 15%. In fact, in its most recent update, it generated an operating margin of just 10.68%. Returns on invested capital are similarly less impressive.

At 7.6%, this is barely or not even above the company's weighted average cost of capital.

Again, orders are booming, but in order to secure those orders, Raytheon has to bid aggressively for these contracts, and the US government and other governments are not keen on granting the company lucrative prices for their products.

That being said, given the multiple wars raging and increasing geopolitical tension, investors have understood the growing importance of Raytheon in world wide relations. They've bid up the stock.

It's now trading at a forward price to earnings of 27. It's near the highest it's traded for according to this valuation metric going back to late 2023. I also updated my discounted cash flow valuation for Raytheon, revising higher my estimates for how much free cash flow I expected business will generate over the next few years as the increasing and prolonged war in Iran between the United States, Iran, Israel, and the Middle East and Iran retaliating, sending missiles anywhere nearby, and that's facilitating a growing demand for products from Raytheon.

Its fair value estimate increased to $232 compared to the current market price of $210, the stock looks undervalued using my DCF model. Even though it's close to its 52-week high of $227, the stock still looks undervalued based on my DCF calculation.

Comprehensively, though, I would say the stock looks fairly valued because on a forward PE basis, it looks slightly expensive in this regard.

RTX stock is up over 14% year-to-date in 2026, and of course, I'm pleased with that performance plus dividends because I've had this stock ranked as a buying opportunity. I last updated this ranking on March 25th, 2026.

And today, after reevaluating the company, revising my estimates, I will reiterate that buy ranking on August 25th, 2026. However, I will also note that I have a low conviction level on this ranking because of the factors I highlighted earlier.

Sales and orders are booming, but the company's operating margin and returns on invested capital are not all that attractive. Furthermore, it's trading near its expensive level on a forward price-to-earnings basis.

If there should be resolution to the conflicts in the Middle East or between Russia and Ukraine, that could decrease investor sentiment for the company's share price, while still demand for the company's products is unlikely to go down as a result of any resolution.