A caller asked what was going on with RTX Corporation (NYSE:RTX) during the September 16 episode of Mad Money. In response, Jim Cramer said:
Okay, here’s what’s happening. We’ve been looking at companies that have high price-to-earnings multiples, and we’ve been shrinking them. As the Fed raises rates, the multiple that people pay for earnings will go down. Right now, it’s 27 times earnings. In a rate cycle where the Fed is raising rates, that PE multiple… has to come down. And that’s why that stock is going lower.
The Federal Reserve announced a 25-basis-point increase in the target range for the federal funds rate on September 16, to 3.75%-4.00%.
RTX Growth and Its High Valuation
RTX Corporation reported second-quarter sales of $24.7 billion, up 14% year over year, while adjusted EPS rose 21% to $1.89. The company raised its 2026 adjusted EPS outlook to $7.10-$7.25 and free-cash-flow outlook to $8.50-$8.75 billion. Its backlog reached $289 billion, up 22% year over year. The company’s second-quarter results showed continued growth across its businesses, but the valuation leaves investors paying a premium for that growth.
RTX Still Has to Convert Its Backlog
The bearish case is that RTX Corporation could face pressure if its valuation multiple contracts while earnings growth does not offset the decline. The company’s 2026 guidance calls for continued earnings growth, but a lower multiple would still weigh on the stock. While RTX CEO Chris Calio said that RTX remained on track at the Morgan Stanley 14th Annual Laguna Conference on September 15, he also addressed industry supply constraints. At the conference, Morgan Stanley analyst Kristine Liwag described converting industry demand into revenue as “a pain point for the industry with constrained supply.” Calio said RTX was addressing the issue through investments in factories, automation, and its supply chain. The combination of a premium valuation and the need to execute against a large backlog gives the stock less room for a valuation reset if earnings growth slows.
Hedge Fund Positioning and Short Interest
According to Insider Monkey, which tracks more than 1,000 hedge funds, 92 hedge funds held RTX at the end of the second quarter, down from 95 in the first quarter. Of those funds, Fisher Asset Management was the top shareholder with approximately 22.9 million shares. Additionally, RTX’s short interest was roughly 0.9%-1% of the float. RTX Corporation’s latest results show continued earnings growth, while management reaffirmed its updated 2026 outlook at the September 15 Morgan Stanley conference. With short interest below 1% of the float, Cramer’s concern is the potential for a lower P/E multiple as interest rates rise.
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