Jefferies reiterates Buy on RTX stock, keeps $220 price target

Jefferies reiterated a Buy on RTX, keeping its $220 target as the stock trades around $199.25 (~10% upside). The firm expects RTX second-quarter adjusted EPS of $1.74 vs $1.67 consensus and forecasts 2026 adjusted EPS of $7.10 vs $6.94 consensus (with company guidance of $6.70–$6.90), alongside free cash flow of $8.6B vs roughly $8.5B midpoint. On the defense side, Raytheon plans to double Stinger missile production via European partnerships and is advancing AMRAAM capacity expansion with NATO-aligned supplier qualification; RTX options activity also rose notably in July 2026 $200 calls.

Analysis

The immediate winner is RTX, but the real driver is not the headline risk premium; it is the likelihood that replenishment cycles for interceptors and air-defense hardware get pulled forward while European localization absorbs some of the political urgency. That mix tends to be better for top-line visibility than for margin, because more volume can come with more third-party content and more working-capital drag. LMT participates more indirectly: Patriot-related European maintenance is supportive, but it is a slower-moving, lower-beta way to express the same theme.

The second-order effect is that geopolitics can expand the addressable market without fully monetizing at the prime level. If European partners take more assembly and subcomponent work, RTX can win backlog while a larger share of incremental economics leaks to regional suppliers; that is bullish for revenue duration, less so for near-term FCF conversion. In the next 1-3 months, the trade is really about whether this becomes a sustained procurement cycle rather than a one-day risk-off spike.

The contrarian risk is crowding: defense names often gap on headline escalation, then fade when investors realize order flow and budget funding arrive with a lag of quarters, not days. A reversal in oil or a quick de-escalation would likely hit the multiple before it hits reported numbers. Over 6-18 months, the thesis breaks if RTX cannot convert backlog into cash at roughly the guided run-rate or if European coproduction shifts too much value to partners and dilutes incremental margin.

Key Decisions for Investors

• Long RTX / short LMT for 1-3 months: RTX has cleaner near-term leverage to missile replenishment and aftermarket, while LMT is more exposed to slower platform-cycle timing; exit if LMT wins a materially larger European Patriot maintenance package or RTX margin commentary slips.
• Buy RTX on pullbacks rather than chasing the open: use a 5-10% correction window to build exposure, targeting a 1-3 month move driven by procurement headlines; thesis is invalidated if the geopolitical premium unwinds and the stock gives back the entire gap.
• For existing RTX longs, consider call overwrites or call spreads instead of outright upside chasing: the options flow suggests crowded positioning, so implied volatility may be overpricing the persistence of the current risk premium.
• Monitor EU/NATO order announcements and RTX cash conversion over the next two quarters; if backlog rises but FCF stays below the implied run-rate, treat the move as multiple-driven and trim into strength.