Stock Analysis on Net

RTX Corp. (NYSE:RTX)

Present Value of Free Cash Flow to Equity (FCFE)

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

RTX Corp., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 8.04%
01 FCFE0 17,367
1 FCFE1 17,724 = 17,367 × (1 + 2.05%) 16,404
2 FCFE2 17,762 = 17,724 × (1 + 0.22%) 15,215
3 FCFE3 17,474 = 17,762 × (1 + -1.62%) 13,854
4 FCFE4 16,870 = 17,474 × (1 + -3.46%) 12,379
5 FCFE5 15,977 = 16,870 × (1 + -5.29%) 10,851
5 Terminal value (TV5) 113,430 = 15,977 × (1 + -5.29%) ÷ (8.04%-5.29%) 77,039
Intrinsic value of RTX Corp. common stock 145,743
 
Intrinsic value of RTX Corp. common stock (per share) $109.84
Current share price $92.93

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of RTX Corp. common stock βRTX 0.39
 
Required rate of return on RTX Corp. common stock3 rRTX 8.04%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rRTX = RF + βRTX [E(RM) – RF]
= 4.53% + 0.39 [13.63%4.53%]
= 8.04%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

RTX Corp., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Dividends on common stock 3,239 3,128 2,957 2,732 2,442
Net income (loss) attributable to common shareowners 3,195 5,197 3,864 (3,519) 5,537
Net sales 68,920 67,074 64,388 56,587 77,046
Total assets 161,869 158,864 161,404 162,153 139,716
Shareowners’ equity 59,798 72,632 73,068 72,163 41,774
Financial Ratios
Retention rate1 -0.01 0.40 0.23 0.56
Profit margin2 4.64% 7.75% 6.00% -6.22% 7.19%
Asset turnover3 0.43 0.42 0.40 0.35 0.55
Financial leverage4 2.71 2.19 2.21 2.25 3.34
Averages
Retention rate 0.29
Profit margin 6.39%
Asset turnover 0.43
Financial leverage 2.54
 
FCFE growth rate (g)5 2.05%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income (loss) attributable to common shareowners – Dividends on common stock) ÷ Net income (loss) attributable to common shareowners
= (3,1953,239) ÷ 3,195
= -0.01

2 Profit margin = 100 × Net income (loss) attributable to common shareowners ÷ Net sales
= 100 × 3,195 ÷ 68,920
= 4.64%

3 Asset turnover = Net sales ÷ Total assets
= 68,920 ÷ 161,869
= 0.43

4 Financial leverage = Total assets ÷ Shareowners’ equity
= 161,869 ÷ 59,798
= 2.71

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.29 × 6.39% × 0.43 × 2.54
= 2.05%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (123,302 × 8.04%17,367) ÷ (123,302 + 17,367)
= -5.29%

where:
Equity market value0 = current market value of RTX Corp. common stock (US$ in millions)
FCFE0 = the last year RTX Corp. free cash flow to equity (US$ in millions)
r = required rate of return on RTX Corp. common stock


FCFE growth rate (g) forecast

RTX Corp., H-model

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Year Value gt
1 g1 2.05%
2 g2 0.22%
3 g3 -1.62%
4 g4 -3.46%
5 and thereafter g5 -5.29%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 2.05% + (-5.29%2.05%) × (2 – 1) ÷ (5 – 1)
= 0.22%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 2.05% + (-5.29%2.05%) × (3 – 1) ÷ (5 – 1)
= -1.62%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 2.05% + (-5.29%2.05%) × (4 – 1) ÷ (5 – 1)
= -3.46%