RTX Corporation’s RTX business segment, Pratt & Whitney, recently accomplished the Preliminary Design Review for the F135 Engine Core Upgrade (“ECU”), thereby confirming that the ECU’s design is on time and better than expected. These upgraded F135 engines, once integrated into the F-35 jets, are expected to boost this fighter aircraft’s performance.
Benefits of the Upgrade
The ECU is an upgrade developed by Pratt & Whitney for its F135 engines to provide an affordable, low-risk and agile pathway for enhancing propulsion capability for all three variants of F-35 jets. The ECU upgrade incorporates the latest propulsion technology that supports the integration of next-generation sensors and weapons.
Therefore, the ECU upgrade will meet the necessary requirements for the Block 4 upgrade of F-35 jets, which is aimed at enabling the F-35 aircraft to carry more weapons and improve its electronic warfare capabilities.
The fact that the F135 ECU is expected to generate tens of billions of lifecycle cost savings makes it the most cost-effective solution for the block 4 upgrade of F-35 jets.
Further, with more than one million safe flight hours, the F135 ECU will help retain the F135 engine its position as the safest fighter engine ever produced.
What’s Favoring RTX?
Amid the rising geopolitical unrest across the world, countries are rapidly increasing their military spending to improve their capacity for battle. With aerial security being an important section of a nation’s defense map, there remains solid demand for combat-proven jets like the F-35.
Built by America’s largest defense contractor, Lockheed Martin LMT, the F-35 enjoys a profitable position in the combat aircraft market, with this aircraft being the most lethal fighter jet worldwide. Among its latest developments, worth mentioning is the Czech Republic’s decision as the 18th country to join the F-35 global team in the first quarter of 2024, in which it intended to purchase 24 F-35s. This indicates soaring demand for Lockheed’s F-35 aircraft.
Such rising demand for the F-35 enables RTX, the producer of this jet’s engine, F135, to receive a constant stream of orders from the Pentagon, U.S. allies and other international customers. Pratt & Whitney has supplied more than 1,200 F135 engines to date.
The production of F-35 jets is expected to continue for several years, given the U.S. government’s current inventory target of 2,456 aircraft for the Air Force, Marine Corps and Navy. This should boost the demand for F135 engines and can be expected to boost its order growth in the near future once the aforementioned ECU is incorporated into the F-35 aircraft. Such order growth should boost the top line of RTX’s Pratt & Whitney unit, which registered 23% year-over-year sales growth in the first quarter of 2024.
Peer Prospects
The aforementioned F-35 inventory target should also benefit other defense majors like Northrop Grumman NOC and BAE Systems Plc BAESY, which are involved in the production of this aircraft.
Northrop Grumman produces the F-35 aircraft’s center fuselage, the AN/APG-81 AESA radar and communications subsystems and provides sustainment support for the Electro-Optical Distributed Aperture System. Moreover, Northrop Grumman’s Integrated Communications, Navigation, Identification, incorporated in F-35 jets, is one of the most advanced integrated avionics systems ever engineered to greatly enhance pilot effectiveness. Also, its AARGM-ER tactical missile provides the Suppression and Destruction of Enemy Air Defenses capability to all versions of the F-35.
Northrop has a long-term (three to five years) earnings growth rate of 8.7%. The Zacks Consensus Estimate for NOC’s 2024 sales suggests growth of 4.6% from the prior-year reported figure.
BAE Systems is another key partner in the manufacturing of F-35 jets. The rear fuselage of every F-35 in the global fleet has been built by BAE Systems. It also manufactures vertical and horizontal tails for the F-35 jets. Moreover, the company offers an electronic warfare package for the F-35, which comprises fully integrated radar warning (targeting support and self-protection) to identify and neutralize surface and airborne threats.
BAE Systems boasts a long-term earnings growth rate of 12.2%. The Zacks Consensus Estimate for BAESY’s 2024 sales implies an improvement of 34.1% from the 2023 reported figure.
Price Movement
In the past six months, shares of RTX Corp. have risen 19.5% against the industry’s decline of 4%.
Image Source: Zacks Investment Research
Zacks Rank
RTX Corporation currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
Bae Systems PLC (BAESY) : Free Stock Analysis Report
RTX Corporation (RTX) : Free Stock Analysis Report
Source Agencies
