Insider cluster buying at Raytheon Technologies. Unusual purchases come after the SEC subpoenas RTX records.

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It’s typically bullish when a corporate insider buys shares of his or her company. Insiders have knowledge about their companies that outsiders don’t. But when multiple corporate insiders purchase their own stock at the same time, it’s typically an even stronger buy signal. Such “cluster buying” implies agreement among the company’s insiders that the stock is attractively valued. So the unusual insider cluster buying at Raytheon Technologies (RTX) is worth noting.

In a Form 4 filed this morning just before the market opened, five Raytheon Insiders disclosed buying $4.59M of RTX stock on the open market. Most notably, President and CEO Gregory Hayes bought 55,000 shares at $54.82 on Oct. 28. Hayes’ $3M purchase is his first since being appointed as CEO in 2014. And in fact, it is the only open market purchase by Hayes in his nearly 21 years working at United Technologies/Raytheon. The purchases raised Hayes’ holdings from 215,560 shares to 270,560, an increase of 26%.

Also joining in the buying was Executive Chairman Thomas Kennedy who took down 19,059 shares yesterday at $52.47. It was the first open market purchase of Raytheon/United Technologies stock in Kennedy’s filing history which dates back to 2010. Director Dinesh Paliwal bought 9,532 shares yesterday at $52.41, increasing his stake in RTX by 89%.

Insider cluster buying at Raytheon Technologies.

Filing DateInsiderTitleTransactionTrade Date Shares Avg. Price Total % Change
30-Oct-2020Paliwal Dinesh CDirectorOpen Mkt Buy29-Oct-2020          9,53252.41 $        499,54689%
30-Oct-2020Kennedy Thomas AExecutive Chairman, DirectorOpen Mkt Buy29-Oct-2020        19,05952.47 $     1,000,0206%
30-Oct-2020Jimenez Frank REVP and General CounselOpen Mkt Buy29-Oct-2020          1,00052.57 $          52,5702%
30-Oct-2020Hayes GregoryPresident and CEO, DirectorOpen Mkt Buy28-Oct-2020        55,00054.82 $     3,015,00026%
30-Oct-2020Winnefeld James A JrDirectorOpen Mkt Buy28-Oct-2020             50055.2 $          27,6007%

The insider cluster buying at Raytheon Technologies comes after the company’s Oct. 28 disclosure of a demand from the U.S. Department of Justice for records dating back more than a decade from the company’s missile business.

According to Bloomberg, the criminal subpoena was dated Oct. 8 and Raytheon is cooperating. Federal prosecutors are seeking documents and information in a probe of accounting and other reporting matters within Raytheon’s Missiles & Defense business since 2009, according to a RTX filing.

In the same filing, Raytheon also disclosed it had received a second subpoena from the SEC related to a separate, previously disclosed probe. RTX declined 7.4% to $52.34 on Wednesday amid a broad market decline. It was RTX’ largest drop since June.

RTX closed at $54.34 today after the Form 4 disclosures, bucking the stock market’s downtrend.

Raytheon Rechnologies (RTX) daily chart since June. Source: Interactive Brokers

Citigroup analyst: Raytheon management-signed documents estimate the financial impact of the SEC’s actions to be “immaterial.”

Citigroup analyst Jonathan Raviv was quoted by Bloomberg as saying: “The market is in ‘shoot first, ask questions later’ mode. As a result, we’re not surprised to see the stock reaction since the potential outcomes range from very bad to zero outcome at all. But keep in mind that management-signed documents estimate it’s immaterial.”

In response to the SEC request, the company issued the following statement. “Raytheon Company maintains a rigorous anti-corruption compliance program, is cooperating fully with the SEC’s inquiry, and is examining whether there has been any conduct that is in violation of Raytheon Company policy.”

RTX shares had declined 7% on Oct. 27 after posting 3rd quarter results that disappointed investors. Revenue was higher by $3.4 billion to $14.7 billion, but net income skidded by 77% to $264 million.

Covid-related weakness in the aviation sector has weighed heavily on Raytheon. The company’s Collins Aerospace and Pratt & Whitney divisions saw segment sales drop 34% year over year, with Collins seeing profits drop more than 90%, and Pratt & Whitney reversing a year-earlier profit with a substantial loss. Higher volumes of sales on military aircraft were more than offset by declines in the commercial arena.

The insider cluster buying at Raytheon Technologies suggests recent bad news and stock weakness may present a buying opportunity.

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