Raytheon Technologies will survive, this fund manager says

Raytheon Technologies (Raytheon Technologies Stock Quote, Chart, News NYSE:RTX) has taken it on the chin since the start of the COVID-19 pandemic but with its defense business staying strong and airline travel slowly creeping back, the stock should do well over a longer-term horizon.

That’s the take from portfolio manager Christine Poole of GlobeInvest Capital, who nonetheless cautions that the next few quarters could be rough for RTX.

The outcome of a merger earlier this year between aerospace business United Technologies and US defence contractor the Raytheon Company, Raytheon saw its share price drop like a stone through the early days of the COVID-inspired market pullback.

The stock lost half of its value in a little over a month and has seen its rebound stall more recently, leaving RTX down 30 per cent for the year so far.

Poole says with half of its business tied up in the aerospace sector, Raytheon will continue to feel the pain from an industry crippled by the COVID-19 pandemic.

“We own it because we owned United Technologies and we've chosen to continue holding Raytheon,” says Poole, CEO of GlobeInvest, who spoke on BNN Bloomberg Wednesday. “The coronavirus has had a very negative impact, as we know, on the airline industry, so that will really have a negative impact on the commercial aerospace side of the business because, obviously, [Raytheon subsidiary] Pratt Whitney makes engines.”

“The rate that planes are being built has been has slowed down dramatically. In terms of the aftermarket which tends to hold in relatively well in a recession [with] planes and parts that have to be serviced, unfortunately, planes aren't flying so there's not a lot of flying time,” Poole said. “So we know that this is going to be a period this year that's going to be negative for the commercial aerospace side [but] we think the company can ride this out.”

Upwards of 70 per cent of the worldwide total of aircraft have been grounded since the pandemic took hold earlier this year, with no clear sign of when flying will normalize in the future, leaving an industry that was up until 2020 was firing on all cylinders.

And while that momentum has certainly vanished, Poole thinks the strength that aerospace displayed before COVID should ultimately return.

“Eventually air travel should start to resume —and it is resuming slowly— and as long as planes do start flying more and more there will be a need for aftermarket, and I do think commercial aerospace or airline travel in the long term still remains a very attractive space,” Poole said.

“Raytheon has a strong balance sheet; meanwhile, its defense business is going quite well, it's quite strong, and the management team of United Technologies has come over to the combined entity and we have a lot of confidence in them,” she said.

“So we continue to hold Raytheon, even though it's going to be a tough year this year with the commercial aerospace side,” Poole said.