(NYSE: RTX) is one of the most compelling investment options in the aerospace and defense sector, and the stock's current dividend yield of 2.9% doesn't hurt either. That said, the stock's 18.6% decline this year tells you it hasn't been a vintage period for the company, and anyone thinking of buying the stock needs to assess the puts and takes before taking the plunge or even dipping in their toes. Here's what you need to know about RTX.

Rightly or wrongly, investors tend to key off of targets that management sets in stone. For RTX, that target is $7.5 billion in free cash flow (FCF) by 2025. Based on the current market cap of $118.1 billion, if RTX hits it, it will trade at 15.7 times FCF in 2025. Given that a price-to-FCF multiple of around 20 times FCF is often seen as fair value for a mature industrial company, it implies a 27% upside to the current price or 12.6% per annum over two years. Add the dividend in, and its annual total return is 15.5%.

That's attractive enough, but investors need to consider the risk of the target being hit. Given that the company was forced to lower the target by $1.5 billion as a result of cash headwinds coming from the need to remove and inspect turbine discs potentially manufactured with contaminated powder metal, it's a genuine concern.

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Source Fool.com