Besides this second quarter, I had the chance to cover Morgan Stanley’s note on RTX in April after their impressive Q1. Morgan Stanley cut RTX’s price target to $220 but maintained an Overweight rating, viewing the post-earnings dip as a “buying opportunity.”
Fast forward to this Q2 coverage: RTX Corp. (RTX) remains one of the most durable demand backdrops in aerospace and defense, executing well enough to continue raising its guidance. July 23 delivered the same script. In fact, bigger.
RTX reported Q2 2026 results on July 23, sending shares up 7.3% while the S&P 500 fell 1.2%, marking one of the sharpest single-day outperformances for a company of this scale.
Morgan Stanley reviewed the results in a note shared with me at TheStreet, raised its price target to $240 from $220, and reiterated its Overweight rating. RTX trades at $215 as of this report, according to Yahoo Finance. Meaning the $240 target implies roughly 12% upside from current levels.
Morgan Stanley’s note’s framing was: “Stronger for Longer Across Commercial Aerospace and Defense.”
Also Read: Raytheon Technologies Corporation (RTX) Latest News and Stories
What the RTX Q2 2026 results actually showed
The headline numbers from RTX’s July 23 earnings release were broadly strong across all three segments.
- Sales reached $24.7 billion, up 14% year-over-year (YOY) and 16% organically.
- Adjusted EPS was $1.89, up 21% year over year.
- Free cash flow of $2.9 billion.
- Company backlog of $289 billion, up 22% year over year, including $170 billion commercial and $119 billion defense.
Source: RTX Q2 2026 Results
Full-year 2026 guidance was also raised across every meaningful metric.
- Adjusted sales guidance was raised to $ 95 to $ 96 billion, up from $92.5 to $93.5 billion.
- Organic sales growth guidance was raised to 8% to 9% from 5% to 6%.
- Adjusted EPS guidance was lifted to $7.10 to $7.25, up from $6.70 to $6.90.
- Free cash flow guidance was raised to $8.50 to $8.75 billion, up from $8.25 to $8.75 billion
Source: RTX Q2 2026 Results
“Our backlog is up 22% year-over-year,” said RTX Chairman and CEO Chris Calio in the earnings release. “RTX is exceptionally well positioned to drive continued growth.”
Why Raytheon is the primary upside driver for RTX Corp
In both notes shared with me at TheStreet (Q1 and Q2 notes), Morgan Stanley identifies Raytheon as the largest source of incremental earnings upside. The numbers behind that conclusion are specific.
Raytheon’s backlog grew approximately 16% sequentially in Q2 to $86 billion, producing a 2.4x book-to-bill ratio. International awards more than doubled in the first half of 2026 to over $10 billion. International customers now represent approximately 48% of Raytheon’s backlog, according to the note.
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Critically, RTX’s five missile defense framework agreements are not yet included in that backlog figure, according to Morgan Stanley’s note.
When those agreements convert to definitive contracts, they represent a meaningful source of incremental multi-year revenue and margin upside that is not currently visible in consensus estimates.
Related: Morgan Stanley adjusts RTX price target after earnings
The firm described this as demand concentrated in mature programs with improving material receipts and favorable international economics.
This is also a story that extends well beyond 2026. Approximately 75% of Raytheon’s portfolio is in air and missile defense products, according to Morgan Stanley’s analysis.
In the current geopolitical environment, that is precisely the product mix that drives the sustained international demand the firm expects.
Igor Golovniov/SOPA Images/LightRocket via Getty Images
Pratt aftermarket improvement and Collins margin expansion round out the bull case
Beyond the Raytheon defense story, two operational improvements give Morgan Stanley confidence that the RTX earnings trajectory is durable into 2027 and 2028.
At Pratt & Whitney, the Geared Turbofan engine issue that has been the program’s most persistent operational challenge is improving measurably.
PW1100 aircraft on the ground levels declined 25% year-to-date. Maintenance, repair, and overhaul (MRO) output increased by more than 40%. Turnaround times improved by 23%. Commercial aftermarket sales grew 25%, according to the Q2 earnings release and Morgan Stanley’s analysis.
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The aircraft-on-ground (AOG) improvement is the single most important data point for Pratt’s medium-term earnings power.
At Collins Aerospace, structural cost-reduction initiatives are expected to drive margin expansion toward 19% to 20% over time from the current approximately 17% range. Higher OE production volume combined with those cost actions creates a clear earnings bridge without requiring any additional demand assumption.
Morgan Stanley raised its 2026 adjusted EPS estimate to $7.25 from $6.90, and its 2027 and 2028 estimates to $7.85 and $8.50, respectively, according to the note.
The $240 price target is based on approximately 32 times 2027 free cash flow per share, in line with large-cap commercial aerospace peers and representing a modest discount to GE Aerospace (GE).
RTX is up 18.25% year-to-date and 39.18% over the past year, according to Yahoo Finance. For a company generating $2.9 billion in quarterly free cash flow with a $289 billion backlog, a record Raytheon order environment, and improving execution across all three segments, Morgan Stanley’s 4.3x risk-reward ratio makes the case for staying long.
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