Raytheon Technologies Corporation (RTX) rose by 10.98% to $64.99 at ring of the bell on Monday. But shares of the aerospace and defense company fell nearly 26% since beginning of the year.
At the one end company’s shares are on the higher side while on the other end company’s management is not promising impressive 2021. But some of prospects are making its shares attractive for investors interested in a long-term investment.
Raytheon provides advanced systems and services for commercial, military, and government customers worldwide and the COVID-19 crisis had a negative impact on its business, especially in the component segment of civil aviation. This has contributed to a worsening of the share price to free cash flow per share (FCF) ratio, which is also used as a primary measure in the assessment of industrial conglomerate prospects. Raytheon expects $2 billion in free cash flow in 2020, plus $1.2 billion in costs for mergers, restructuring and taxation. Because of this, with a conservative outlook, its FCF would be more than 40 in 2020 and just over 25 (if the company gets a potential additional $3.2 billion in cash flow).
However, the specifics of high-tech manufacturing firm should be taken into account which includes the production of new goods, such as aircraft engines, smart ammunition or control systems that takes several years and makes profits over decades. Thus, relative to Raytheon’s innovation cycle, the COVID-19 crisis is a short period of time, and big contracts are the key signals for long-term investors. It can be understand with its winning of a $10 billion contract to produce long-range cruise missiles.
Raytheon expects free cash flow of between $3.6 billion and $4.5 billion in the defense segment in the next few years. This will provide the requisite funds to retain business continuity and investments in the civil aerospace market, which will be in demand after COVID-19.
Temporary issues are also not imposing a risk to long-term investors in the company.