On August 17, the U.S. military awarded RTX Corporation (NYSE:RTX)’s Raytheon business a $22.9 billion contract to accelerate the production of Tomahawk missiles, a mainstay of the Navy’s fleet.
The development comes as the United States scrambles to replenish depleted stockpiles after using and providing allies with munitions to use during the conflict with Iran, raising concerns about the inventories of critical weapons.
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The company said in a statement that the contract would run for seven years and boost the annual output of Tomahawk missiles to 1,000 units, up from its current level of 60 a year.
The award, which is part of the ‘Arsenal of Freedom’ push, cements a framework agreement Raytheon signed with the Pentagon in February to expand the production rates of Tomahawks, AMRAAM air-to-air missiles, and SM-3 Block IB and SM-3 Block IIA ballistic missile interceptors.
Bull Case
RTX Corporation (NYSE:RTX) ended Q2 with a backlog of $289 billion, increasing 22% year-over-year. This included a defense backlog of $119 billion, which will now further grow through this contract award of nearly $23 billion and strengthen future revenue visibility.
The company has invested heavily in increasing production of Tomahawks in recent years. It delivered three times more of these missiles during the first half of 2026 compared to the same period in 2025, reflecting strong execution.
The demand pipeline for the Tomahawks from allied partners of the U.S. is also likely to extend the growth runway beyond the Navy.
The aerospace and defense contractor last month lifted its sales guidance to between $95 and $96 billion, up from the range of $92.5 billion to $93.5 billion, amid sustained demand for commercial aircraft maintenance and military systems. RTX anticipates adjusted EPS between $7.10 and $7.25, against earlier expectations of $6.70 to $6.90 per share.
Bear Case
The contract of $22.9 billion over seven years averages out to $3.27 billion, which is approximately 3.4% of the estimated sales in 2026. Therefore, bearish investors might not read too much into this award.
Skeptics may also argue that a 17x ramp-up in production could result in an execution risk, as RTX Corporation (NYSE:RTX)’s workforce and supply chain would also have to scale up accordingly.
Another question that arises is whether the company’s Raytheon unit had a segment operating profit margin of 12.6% in Q2 and whether or not it will be able to sustain or improve on this level while rapidly expanding the output of critical weapons like the Tomahawks.
Moreover, the stock is up nearly 15% year-to-date as of the close on August 21. It trades at a forward price-to-earnings ratio of 29.31, much higher than the sector median of 20.68, as well as peers like Lockheed, Northrop Grumman, and General Dynamics, suggesting that the stock already factors in a premium.
Hedge Fund Ownership Trends
While we await aggregated 13F filings data for Q2, hedge funds significantly increased their positions in RTX Corporation (NYSE:RTX) during the first quarter, with hedge fund ownership jumping to 95 funds from 79 in the prior quarter.
That said, figures for Q2 are beginning to come in. According to financial news website Insider Monkey, Fisher Asset Management held the largest stake in the company as of June 30, with holdings valued at over $4.3 billion.
Other major stakeholders include Point72 Asset Management in second with shares worth nearly $626 million, followed by D E Shaw in third with an investment of over $523 million.
Closing Take
The $22.9 billion contract makes for an attractive headline and enhances backlog visibility for the next several years. However, what investors will have an eye on is whether RTX Corporation (NYSE:RTX) can expand production 17 times without impacting margins. The missile gap will be addressed, but whether or not the company does it profitably is the trade.
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