Melius upgraded RTX Corp. (NYSE: RTX) to Buy from Hold, citing improved growth prospects tied to rising defense demand. Shares increased more than 1% intraday Thursday.
The firm said the upgrade was driven by expectations for increased demand related to the replacement of military equipment, including missiles, interceptors, radars, and aircraft used in Operation Epic Fury.
Melius raised its estimates and price targets across major defense contractors, forecasting high-single-digit core sales growth for the defense sector through 2028, compared with consensus expectations of mid-single-digit growth.
The firm attributed its more optimistic outlook to multi-year production programs for key defense systems, including missiles, munitions, shipbuilding initiatives, and an acceleration in B-21 bomber production. These factors are expected to support sustained growth into the 2030s.
Additionally, the firm noted that defense contractors already have substantial multi-year order backlogs, and absent supply chain constraints, annual sales growth in the sector could exceed 10% over the coming years.
Melius also highlighted potential margin expansion as companies transition away from older, lower-margin contracts and secure new awards tied to mature production programs with more favorable economics.
