Melius Research has upgraded RTX Corp. to a buy rating from hold and raised its price target to $242 a share, arguing that Operation Epic Fury will stimulate a protracted wave of defense spending that should meaningfully benefit the aerospace and defense contractor.
Analyst Scott Mikus expects the defense end market to register high-single-digit core sales growth through 2028, a pace he notes is well above consensus forecasts that anticipate mid-single-digit gains. Mikus attributes the stronger outlook to emerging multi-year production frameworks across missiles, munitions and shipbuilding programs that underpin sustained procurement activity.
Mikus also said that, "absent supply chain constraints, annual sales growth in the defense end market would likely exceed 10% over the next several years." That caveat points to supply-chain capacity as a potential limiter on production and revenue upside.
The research note highlights RTX's position as a prime contractor on a number of key systems - including the Patriot, NASAMS, AMRAAM, Standard Missile and Tomahawk - placing the company at the center of heightened demand for missile and missile-defense capabilities. Melius estimated that replacing munitions produced by RTX that were expended in the first 16 days of Operation Epic Fury would cost roughly $6 billion, with additional upside expected as inventories are rebuilt above pre-conflict levels.
On portfolio exposure, Melius calculates that approximately 18% of RTX's total sales are directly linked to missiles and missile-defense programs. For some of those programs, production volumes are anticipated to double or quadruple as multi-year agreements are finalized, according to the firm.
Mikus emphasized RTX's diversified revenue mix as an attraction for investors: about 52% of sales are defense-related while the remaining 48% come from commercial aerospace. That balance, he argues, provides participation in the ongoing defense upcycle while retaining exposure to commercial aerospace activity. He further noted that heavy F-35 utilization in the conflict would likely drive incremental maintenance and spare parts demand for Collins Aerospace and Pratt & Whitney, contributing to aftermarket revenue.
Overall, Melius' upgrade and higher price target rest on the expectation that multi-year production commitments and elevated replenishment of inventories will create sustained demand for RTX's defense-related products and services, subject to the constraints and execution risks that the analyst highlights.