Raytheon Technologies (RTX) is the result of a merger between United Technologies and Raytheon Corp., and also factors in the old UTX’s divestiture of its elevator and air conditioner businesses, and its acquisition of Collins Aerospace, explains analyst John Eade, president of Argus Research.

That’s a lot of moving parts, and it has taken management a while to bring the pieces in line. But we think that job is now finished, and have more confidence in the company’s results and outlook. RTX’s business mix appears favorable compared to that of most defense industry peers.

Raytheon Technologies reported 2Q21 results on July 27, 2021. The company reported adjusted sales of $15.9 billion, up 10% on an organic basis. The net margin widened 580 basis points to 9.9%. EPS jumped 164% to $1.03, above the consensus forecast of $0.92. For the first half, the company has earned $1.93 per share.

The backlog at the end of the third quarter was $152 billion, of which $86 billion was from commercial aerospace and $66 billion was from defense. The backlog was up 3% quarter-to-quarter at the end of 2Q.

Turning to our estimates, and taking into account the expected improvement in both sales and margins, we are raising our 2021 EPS estimate to $3.95 from $3.70. Our estimate is near the high end of management’s guidance range.

We look for growth to continue in 2022 and are boosting our EPS estimate to $5.00 from $4.30. Our five-year earnings growth rate forecast is 9%.

The company had $8 billion in cash on the balance sheet at the end of 2Q21. Total debt was $31 billion, and the debt-to-total capitalization ratio was 29%. The company has a share buyback plan, and is planning to buy back $2.0 billion of its stock in 2021 – up from its previous forecast of $1.5 billion.

RTX pays a dividend. In April, the company raised the quarterly payout 7% to $0.51, or $2.04 annually, for a yield of about 2.4%. Our dividend estimates are $2.01 for 2021 and $2.16 for 2022.

We think that RTX shares are attractively valued at current prices near $87, near the high end of the 52-week range of $51-$90. From a technical standpoint, the shares have reversed a long-term neutral pattern and are now in a bullish pattern of higher highs and higher lows.

To value the stock on a fundamental basis, we use peer and historical multiple comparisons, as well as a dividend discount model. RTX shares are trading at 18-times projected 2022 earnings, near the high end of the historical range of 12-20. The dividend yield of about 2.4% is above the market average, signaling value.

Compared to the peer group, RTX shares are trading in line with or below peer averages on metrics such as P/E and price/sales. Given the greater transparency on the earnings outlook, we think the shares are now undervalued and are setting a 12-month target price of $100.

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