RTX closed 2025 at $88.6 billion of revenue and $7.9 billion of free cash flow with a defence backlog north of $217 billion. Five charts explain why the forward multiple still understates the setup.
RTX just delivered the cleanest industrial print of 2025. Revenue hit $88.6 billion, up 9.7% YoY. Operating income climbed to $8.89 billion from $6.67 billion, a 33% jump. Free cash flow stepped up from $4.53 billion to $7.94 billion, a 75% increase and a new record for the combined entity post-Raytheon-United Technologies merger. The backlog, which we will chart below, is now over $217 billion, equivalent to 2.4 years of revenue forward-booked.
The stock has reflected the fundamental improvement. The 50-day moving average at $200.39 sits meaningfully above the 200-day at $177.39. Yet the forward multiple of 28.8x remains below the peer-adjusted fair value for a business with this backlog-to-revenue ratio and this FCF inflection.
The data tells the story. Five charts, one page.
The 2023 print of $68.9 billion was, in hindsight, the trough. It reflected the Pratt & Whitney powder metal issue that forced accelerated GTF engine inspections and a temporary cash cost estimated at $3 billion. The recovery path is cleanly visible in 2024 and 2025, with the GTF issue now largely behind the company and the defence franchise growing mid-to-high single digits off record backlog conversion. Revenue compounding at this pace, in a business with 60%-plus of revenue locked in through multi-year contracts, is the definition of a high-quality industrial.
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2025 FCF of $7.94 billion is the single most important data point in the RTX thesis. It is the first clean year of cash generation since the Pratt & Whitney issue emerged and it establishes a new baseline. Management has signalled 2026 FCF in the $8.5-$9.0 billion range on mid-single-digit revenue growth and continued working-capital normalisation. At that run-rate, FCF yield on the current $263 billion market cap works out to roughly 3.2-3.4%, which combined with 6-7% EPS growth is the base of a mid-teens total return setup.
RTX's 2025 operating margin of 10.0% remains below the 2022 peer-adjusted peak of 12%, largely because of residual GTF remediation costs. Each 100 basis points of margin on $90 billion of revenue is $900 million of pre-tax income, or roughly $0.55 per share at a normalised tax rate. Getting back to pre-GTF margin levels is worth approximately $1.10 of EPS. Consensus is not yet modelling the full recovery.
A $232 billion backlog against $88.6 billion of revenue is an exceptionally comfortable book-to-bill position. The relevant historical parallel is Lockheed Martin in 2017-2018, when backlog-to-revenue of 2.0x coincided with a 55% three-year total return. RTX today has a higher ratio and a broader end-market mix. The proposed $1.5 trillion US defence budget, if enacted, extends that annuity by adding another 18-24 months of forward bookings to the pipeline, across Patriot systems, Tomahawk missiles, AIM-120 AMRAAM and GEM-T interceptors. International demand (Germany, Japan, Taiwan, Saudi Arabia) is a parallel contributor.
The charts tell a consistent story. Revenue compounding at 8%. Operating margin expanding 100-200 basis points. Free cash flow stepped up by 75% in a single year. Backlog at 2.4 years of revenue. A defence budget tailwind still to be absorbed. And a capital return program returning roughly $4-5 billion annually between dividends and repurchases.
The forward multiple looks rich. It is not rich against the embedded FCF growth and the backlog visibility. The last defence prime to trade through a similar setup (Lockheed Martin 2017) subsequently delivered a 55% three-year total return; the book-to-bill and FCF trajectory at RTX today is comparable and, if anything, incrementally stronger given the commercial aerospace recovery optionality in Collins Aerospace and Pratt & Whitney.
Our fair value band sits at $230-$245 per share on 2027 earnings power. We are buyers of RTX below $195 and are comfortable holding through $215. The only way this setup breaks is a defence budget reset materially below the proposed $1.5 trillion figure or a renewed GTF issue. Both are assignable risks. Neither is our base case.
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