Baird lifts RTX stock rating on European rearmament, DoD replenishment cycle

Investing.com -- Baird upgraded RTX Corp to Outperform from Neutral and raised its price target to $160 from $136, citing a multi-year Department of Defense replenishment cycle and rising European defense orders amid NATO rearmament.

European defense stocks have significantly outperformed U.S. peers year-to-date in 2025, driven by expectations of sustained rearmament across NATO Europe.

Catalysts include former President Donald Trump’s call for NATO members to increase defense spending to 5% of GDP from around 2%, and the European Union’s proposed €800 billion ReArm Europe plan following a temporary breakdown in U.S.-Ukraine negotiations on February 28, 2025.

Since early January 2025, European defense stocks have gained an average of 69%, far outpacing the 1% rise in large-cap U.S. defense stocks.

However, this surge has led to European defense stocks trading at a 32% premium to U.S. peers on an NTM EV/EBITDA basis, compared to historical discounts of 17% to 30% over the past one, three, and five years.

Baird highlighted RTX as the best-positioned U.S. defense contractor to benefit from Europe’s rearmament push, given its leading capabilities in missile defense and radar systems.

About 80% of EU defense procurement is currently sourced from non-EU companies, with RTX being a major supplier of critical missile and radar platforms.

“We believe RTX is extremely well-positioned to benefit from the long-term rearmament of Europe given the company's unrivaled missile defense/radar capabilities,” Baird said.
 
RTX is also set to gain from a multi-year global missile replenishment cycle and robust U.S. DoD budgets, supported by supplemental spending bills and the Golden Dome for America initiative.

Baird noted that concerns related to the company’s GTF (geared turbofan) engine issues are likely to subside by the end of 2025, creating a more favorable investment outlook.