RTX Corporation (NYSE: RTX) saw its stock plummet 8.5–9% on April 22, 2025, following a strong Q1 earnings beat, as investors grappled with the looming threat of $850 million in tariff-related profit erosion.
The aerospace and defense giant’s shares fell to $115.11—near its 2025 low of $99.07—despite reporting $1.47 adjusted EPS (8.9% above estimates) and $20.3 billion in revenue (5% YoY growth).
Below, we dissect whether this selloff is an overreaction or a warning sign for long-term investors.
The Tariff Tsunami: What’s at Stake?
RTX warned that newly imposed U.S. and international tariffs could slash its 2025 operating profit by $850 million, with $250 million each tied to Canada/Mexico and China-related duties. CEO Chris Calio acknowledged the challenge but emphasized mitigation efforts:
“We’re leveraging regulatory mechanisms like duty drawbacks, free trade zones, and supplier diversification to offset these headwinds.”
Despite these measures, the guidance excludes tariff impacts, leaving investors wary of margin compression in a sector already facing supply chain bottlenecks.
Q1 2025: A Paradox of Strength and Uncertainty
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Commercial Aftermarket Surge: Organic sales jumped 8% YoY, driven by a 21% spike in commercial aftermarket demand (e.g., aircraft maintenance).
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Segment Margins: Operating margins expanded by 120 basis points, led by Pratt & Whitney’s high single-digit growth and Collins Aerospace’s cost efficiencies.
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Cash Flow Revival: Free cash flow improved to $0.8 billion (vs. a loss in Q1 2024), supporting RTX’s 31-year dividend growth streak.
Yet, GAAP EPS fell 11% to $1.14 due to restructuring costs, while the stock’s 0.26 beta offered little protection against tariff-driven panic.
Investor Psychology: Overreaction or Rational Fear?
The market’s reaction highlights three conflicting narratives:
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Bear Case: The $850M tariff hit equates to ~12% of 2025’s projected free cash flow ($7B)—a material drag in an era of rising defense budgets.
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Bull Case: RTX’s $217 billion backlog ($125B commercial, $92B defense) locks in revenue through 2030+, acting as a geopolitical shock absorber.
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Technical Signal: At $115.11, RTX trades at a 32.6 P/E ratio—below its 5-year average—with a $166.4 consensus price target implying 44% upside.
The Contrarian Playbook: Why Analysts Say “Buy”
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Undervalued Metrics: InvestingPro’s Fair Value model flags RTX as undervalued, citing its Piotroski Score of 8/9 (strong financial health) and 17.15% YoY revenue growth.
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Dividend Safety: A 2.8% yield (5-year CAGR: 6%) anchors income investors, with $3.7B returned to shareholders in 2024.
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Defense Tailwinds: The U.S. defense budget could hit $1 trillion by 2026, benefiting RTX’s missile systems (e.g., Patriot) and next-gen radar tech.
Strategic Mitigations: How RTX Plans to Fight Back
RTX outlined a multi-pronged approach to soften the tariff blow:
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Contract Renegotiations: Passing costs to commercial clients via price adjustments.
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Operational Shifts: Diversifying suppliers and assembly sites to minimize duty exposure.
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Lobbying Leverage: Exploiting military exemptions for U.S. government contracts.
Verdict: A High-Risk, High-Reward Entry Point
While tariffs pose a clear near-term threat, RTX’s $7B+ free cash flow and dominance in aerospace aftermarkets (a $150B+ annual market) make the stock a compelling buy for patient investors. The 8.5% plunge reflects panic over an already-priced risk, creating a rare opportunity to own a dividend aristocrat at a discount.
Key Takeaway: Monitor tariff exemptions and Q2 cash flow trends. If RTX sustains 8% organic growth, the stock could reclaim its $136.17 high by late 2025.
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