RTX Corporation Defense Trade Deal Boosts Backlog Amid EU Spending Surge | Monexa AI

RTX Corporation Defense Trade Deal: A Strategic Inflection Amid EU Defense Spending Surge#

RTX Corporation (RTX has emerged as a critical beneficiary of the recent surge in European Union defense spending, marked by a pivotal defense trade agreement with the US and EU partners. This development comes as RTX reported a robust defense backlog of $92 billion by Q2 2025, reinforcing its position as a leading global aerospace and defense contractor. The trade deal aligns with Europe's commitment to invest approximately $850 billion over four years to modernize its military capabilities, particularly in integrated air and missile defense systems where RTX's Patriot missile and radar technologies are prominently positioned.

This surge in defense orders is set against a backdrop of escalating geopolitical tensions and the strategic push for enhanced NATO defense readiness. RTX's defense sales in Q2 2025 rose by 8%, driven by land and air defense system deployments, including international Patriot and NASAMS contracts. These contracts not only amplify RTX's revenue streams but also enhance its strategic footprint in the transatlantic defense market.

Financial Performance and Impact of Trade Deal on RTX Fundamentals#

RTX's 2024 fiscal year results reflect the ongoing benefits of its defense segment expansion amid broader operational challenges. The company reported $80.74 billion in revenue, a +17.15% increase year-over-year, with net income rising sharply by +49.42% to $4.77 billion, according to Monexa AI financial data. This substantial growth was accompanied by an operating income margin of 8.1%, which, while lower than the 10.89% in 2022, indicates significant investment in growth and operational scaling.

Research and development (R&D) expenses increased modestly to $2.93 billion, representing approximately 3.6% of revenue, supporting RTX’s innovation pipeline in aerospace and defense technologies. The company's operating cash flow, however, declined by -9.18% in 2024, reflecting elevated working capital needs and tariff-related cost pressures.

The trade deal's benefits are tempered by tariff headwinds, with RTX expecting up to $850 million in tariff costs for 2025, allocated primarily between Collins Aerospace ($275 million) and Pratt & Whitney ($225 million). These tariffs weigh on profitability, prompting RTX to implement supply chain diversification and pricing adjustments to mitigate margin erosion.

Segment-Level Financial Dynamics#

• Collins Aerospace reported $7.62 billion in adjusted sales for Q2 2025, a +9% year-over-year increase, driven by a 13% growth in commercial aftermarket sales and 11% growth in defense sales. Operating profit rose by 5% to $1.17 billion, underscoring resilience amid economic headwinds.

• Pratt & Whitney led segment growth with adjusted sales of $7.63 billion (+12%), fueled by higher engine deliveries and service contracts. However, operating profit declined -9% to $492 million, reflecting operational challenges and supply chain disruptions.

• Raytheon saw a 6% sales increase to $7 billion, with robust demand in land and air defense systems, naval programs, and advanced targeting technologies. Operating profit improved to $805 million despite a $575 million charge related to a prior contract matter.

Backlog Expansion and Market Position#

RTX's total backlog reached $236 billion by the end of Q2 2025, with the defense backlog comprising $92 billion, emphasizing the company's strong position to capitalize on sustained defense spending. This backlog reflects not only contract awards from the US and EU but also the strategic alignment of RTX’s product offerings with NATO’s modernization priorities.

RTX operates in a highly competitive landscape alongside Lockheed Martin and Northrop Grumman. While Lockheed Martin maintains the largest defense-specific revenue base, RTX's broader diversification across aerospace and defense segments, combined with its growing backlog, positions it as a formidable competitor.

Financial Table: RTX Key Financial Metrics (FY 2024 vs. FY 2023)#

Metric	FY 2024	FY 2023	% Change
Revenue (Billion USD)	$80.74	$68.92	+17.15%
Net Income (Billion USD)	$4.77	$3.19	+49.42%
Operating Income (Billion USD)	$6.54	$3.56	+83.15%
Gross Profit Margin	19.09%	17.54%	+1.55 p.p.
Operating Margin	8.1%	5.17%	+2.93 p.p.
R&D Expense (Billion USD)	$2.93	$2.81	+4.27%
Free Cash Flow (Billion USD)	$4.53	$4.72	-3.88%

Market Reaction and Analyst Sentiment#

Despite the positive growth trajectory, RTX's stock price recently declined -0.52% to $156.07 amid investor concerns over tariff-related cost pressures and geopolitical uncertainties. Market analysts remain predominantly bullish, with a consensus 'Outperform' rating. Price targets range from $114 to $160, averaging near $138, suggesting a potential upside of approximately 7.2% from current levels.

Forward-looking valuation metrics indicate a declining price-to-earnings (P/E) ratio from 26.01x in 2025 to 17.99x by 2029, reflecting expected earnings growth and margin improvements. The enterprise value to EBITDA multiple is also projected to compress from 21.31x in 2025 to 17.8x in 2029, signaling anticipated operational leverage.

Analyst Estimates Summary#

Year	Revenue Estimate (B USD)	EPS Estimate	Number of Analysts
2025	$85.32	5.98	10
2026	$90.45	6.68	14
2027	$95.80	7.47	16
2028	$100.23	8.22	14
2029	$102.12	8.64	15

What Does the RTX Defense Trade Deal Mean for Investors?#

The RTX defense trade deal is a strategic catalyst that enhances the company's long-term revenue visibility through a substantial defense backlog and expanded market access in Europe. This partnership aligns with increasing EU defense budgets and NATO's modernization efforts, positioning RTX to benefit from sustained demand in integrated air and missile defense systems.

However, investors should weigh this growth against ongoing tariff costs projected at $850 million for 2025, which compress profit margins and challenge operational efficiency. RTX's mitigation strategies, including supply chain diversification and pricing adjustments, are critical to preserving profitability.

The company's robust segment performance, diversified portfolio, and strong backlog offer resilience amid economic and geopolitical uncertainties. Continued innovation and R&D investment underpin RTX's competitive positioning, while forward earnings estimates suggest meaningful growth potential.

Key Takeaways#

• RTX's defense backlog of $92 billion as of Q2 2025 underscores robust demand driven by the US-EU defense trade deal and heightened geopolitical tensions.
• Fiscal 2024 revenue increased by +17.15% to $80.74 billion, with net income surging +49.42% to $4.77 billion, reflecting operational leverage despite tariff headwinds.
• Tariff costs estimated at $850 million in 2025 pose margin pressures, with mitigation efforts ongoing.
• Segment performance varies: Collins Aerospace shows resilience, Pratt & Whitney faces operational challenges, and Raytheon benefits from strong defense sales.
• Analyst consensus is positive, with price targets indicating a potential 7.2% upside.
• Forward P/E and EV/EBITDA multiples are expected to decline through 2029, signaling improving profitability and growth.

Strategic Implications and Outlook#

RTX's ability to leverage the US-EU defense trade deal will be pivotal in maintaining its competitive edge and capitalizing on rising defense expenditures. The sizable backlog provides revenue visibility, while ongoing R&D investment supports technological leadership.

Management's proactive approach to tariff-related challenges and supply chain optimization will be essential in sustaining margins. The evolving geopolitical landscape underscores the importance of RTX's integrated defense systems, potentially accelerating contract awards and international cooperation.

As the defense sector adapts to new security imperatives, RTX's diversified portfolio and strategic partnerships position it well for long-term growth. Investors should monitor tariff developments and execution of mitigation strategies as key indicators of financial health and operational resilience.

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Sources#

• Reuters: RTX Defense Backlog 2025
• National Defense Magazine: RTX Awards Q2 2025
• Monexa AI Financial Data: Monexa AI