Now come the downgrades.
Monday,
RTX
(ticker: RTX), which was formerly Raytheon Technologies, announced some $3 billion in charges related to a parts problem on its geared turbofan, or GTF, aircraft engine. Investors knew a charge was coming after the company talked about the issue in July. Still, the stock went down almost 8% Monday.
The size of the problem is growing. In July, RTX believed about 1,200 engines would need additional inspection. Now the number is closer to 3,000. All this has unnerved investors. Shares are now down about 21% since the initial disclosure. It has unnerved Wall Street, too, prompting several downgrades of RTX shares after Monday’s update from the company.
“Too much risk in the story,” wrote Melius analyst Robert Spingarn in a Monday report. He cut his rating to Hold from Buy and his target price to $92 a share from $98.
“When RTX presented at the Paris Air Show in June, 10% of aircraft flying GTF engines were out of service largely due to durability issues. Today, 18% are now out of active service,” added Spingarn. That compares with about 5% for the competing LEAP engine built by
General Electric
(GE) and
Safran
(SAF.France).
That deficit will make it hard to achieve RTX’s profitability goals and the company now expects to generate about $7.5 billion in 2025 free cash flow, down from prior expectations of about $9 billion.
The $1.5 billion cut is also one reason RBC analyst Ken Herbert downgraded RTX shares to Hold from Buy. “We can appreciate that we are downgrading the stock after its [roughly] 23% decline year to date,” wrote Herbert in a Monday report. “However…we see incremental risk to the revised free cash flow guide.”
His price target is now $82 a share, down from $105. Barclays analyst David Strauss downgraded shares to Hold from Buy and took his price target to $75 from $100.
Now about 54% of analysts covering the company rate shares Buy. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%. About 68% of analysts covering the company rated shares Buy at the end of June, before the extent of the engine issue was known.
The average analyst target price is at about $95 a share, down from about $110 a few months ago.
Coming into Tuesday trading, RTX stock is down about 12% over the past 12 months. Shares are down another 1% in premarket trading, while S&P 500 and
Dow Jones Industrial Average
futures are both down about 0.2%.
Write to Al Root at [email protected]
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