Defense company Raytheon aims for a $10 billion cash flow
Raytheon Technologies Corporation (RTX), which manufactures precision-guided munitions and military electronics, intends to generate at least $10 billion in free cash flow in 2025.
The company is demonstrating the first steps in this direction, and its capitalization may grow. Raytheon currently includes United Technologies’ large aerospace business, acquired in 2020.
The merger of the companies will provide $600 million in synergy already in 2021 – a year earlier than expected. Moreover, the total synergy from the deal could be $200 million higher than earlier forecasts and could reach $1.5 billion.
Thus, the transaction has been successful, and the goal of free flow is achievable. But, at the same time, it is necessary to consider the uneven recovery of the aviation industry, where the demand for narrow-body aircraft is growing much faster than for wide-body ones.
The Pratt & Whitney brand’s Raytheon division produces jet engines for the narrow-body Airbus A320 Neo, but the Boeing 737 MAX uses LEAP engines from General Electric.
Therefore, the slowdown in the production of wide-body Boeing 787 aircraft negatively affects the financial performance of Pratt & Whitney. In addition, engines for the Airbus A320 Neo with a negative margin to profit from after-sales service.
The imbalance in the aviation segment is likely to persist for several more years. Against this background, by the end of 2021, Raytheon expects organic sales growth of only 1% and a profit of $4.1—$4.2 per share.
Thus, the company continues to move forward and can achieve its ambitious goals. At the auction on November 14, RTX stock was worth $88.86. The market capitalization was $128.45 billion.
