RTX Stock Hit With Downgrades. The Aircraft Engine Problem Is Growing.

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Now came the machines.

Monday,

RTX

(symbol: RTX), which was earlier.

Raytheon Technologies
,

It has announced that it will pay nearly $3 billion over a component problem with a turbofan, or GTF, aircraft engine. Investors knew a payoff was coming after the company talked about it in July. Still, the stock was down about 8% on Monday.

The scale of the problem is growing. In July, RTX believed about 1,200 engines needed further testing. Now the number is closer to 3,000. All this has unqualified investors. Shares are now down 21% since the initial announcement. That left Wall Street skeptical, causing RTX shares to drop several times after the company’s Monday update.

“Too much risk in the story,” wrote Méliès analyst Robert Spingar in a Monday report. He downgraded his rating to Hold from Buy and cut his price target from $98 to $92 per share.

“When the RTX was presented at the Paris Air Show in June, 10% of the aircraft’s flying GTF engines were out of service. Today, 18% are now out of active service,” Spingarn added. That compares to 5% of the rival LEAP engine in production.

General Electric

(GE) and

Safran

(SAF. France).

That shortfall makes it difficult to achieve RTX’s profitability goals, and the company now expects to generate about $7.5 billion in free cash flow by 2025, down from about $9 billion previously expected.

The $1.5 billion discount is one of the reasons why RBC analyst Ken Herbert downgraded RTX shares to Hold from Buy. “We can appreciate that we are reducing the stock after that [roughly] Herbert was down as much as 23% year-to-date in Monday’s report. “However… we see additional risk to the revised free cash flow guidance.

His price target is now $82 per share, down from $105. Barclays analyst David Strauss downgraded the stock to hold from buy and raised his price target to $75 from $100.

54% of analysts now buy the company’s stock. The average buy-rate ratio for stocks in

S&P 500
It is about 55%. 68% of analysts who cover the company buy shares at the end of June, before the extent of the engine problem is known.

The average analyst target price is around $95, down from $110 a few months ago.

As of Tuesday’s trading, RTX stock was down 12 percent over the past 12 months. Shares fell another 1% in premarket trading, while the S&P 500 and

Dow Jones Industrial Average
Futures were both down about 0.2%.

Write to Al Root at [email protected]