Defense Undervalued? RTX vs. LMT: Which Earnings Will Hit Harder?

$RTX Corp(RTX)$ $Lockheed Martin(LMT)$

As global security threats mount and military budgets continue to climb, U.S. defense stocks have quietly lagged behind broader markets. Despite strong long-term fundamentals, shares of two of America’s largest defense contractors — RTX Corporation (formerly Raytheon Technologies) and Lockheed Martin (LMT) — have underperformed the S&P 500 so far in 2025.

Now, with both companies set to report quarterly earnings this month, investors are watching closely to see whether defense is an overlooked value play — or if deeper operational and geopolitical risks justify investor caution.

This article examines the competitive dynamics between RTX and Lockheed Martin, reviews their current fundamentals, and assesses what investors can expect from their upcoming earnings reports — and beyond.

A Tale of Two Titans

RTX and Lockheed Martin represent two of the most important players in the U.S. and allied defense industrial base.

RTX, born from the 2020 merger of Raytheon and United Technologies, combines missile systems, avionics, and aerospace manufacturing with a diversified portfolio spanning both military and commercial markets. Its business segments include Collins Aerospace, Pratt & Whitney, and Raytheon Missiles & Defense.

Lockheed Martin, by contrast, is a pure-play defense contractor and the world’s largest military supplier, best known for its flagship programs like the F-35 Joint Strike Fighter, Aegis missile defense, and a range of classified systems.

Both companies benefit from multi-year contracts, strong barriers to entry, and steady cash flows, thanks to the politically resilient nature of defense spending. But each also faces unique challenges: RTX with its exposure to commercial aerospace cycles and recent engine recall issues, and Lockheed with its dependence on a single high-profile platform and political scrutiny over cost overruns.

Defense Stocks: Left Behind?

Despite rising U.S. and NATO defense budgets, RTX and Lockheed have delivered muted stock performance in 2025. The S&P 500 is up roughly 11% year-to-date, but RTX is down about 3% and Lockheed has eked out only a modest 2% gain.

Several factors have weighed on investor sentiment:

• RTX has been hampered by lingering issues with Pratt & Whitney’s geared turbofan engine, which forced a costly recall last year.

• Lockheed faces pressure over the escalating lifetime cost of the F-35 program and slower-than-expected international orders.

• Both have seen margins pressured by inflation in labor and materials, and ongoing supply chain bottlenecks.

• Concerns about potential defense spending cuts in a post-election budget environment have also dampened enthusiasm.

Yet, with valuations at multi-year lows relative to earnings and free cash flow, some analysts argue that both names are overdue for a rebound — provided earnings deliver evidence of operational improvements and sustained demand.

Current Fundamentals: A Closer Look

A review of key financial and operational metrics provides insight into where RTX and Lockheed stand ahead of earnings.

RTX Corporation (RTX)

• Market Cap: ~$123 billion

• Forward P/E: ~15x (below its 5-year average of ~19x)

• Dividend Yield: ~2.9%

• Debt/EBITDA: ~2.4x

• Backlog: $190 billion (record high)

RTX remains hampered by the cost and reputational damage of its Pratt & Whitney engine recall, which analysts estimate could cost the company up to $6 billion over several years. That said, the company’s backlog is at record levels, driven by strong missile and radar demand amid global conflicts, and commercial aerospace recovery continues to support its Collins Aerospace division.

Investors will be watching closely for updates on the engine recall costs and the margin outlook for the Missiles & Defense segment, which has posted inconsistent profitability over the last year.

Lockheed Martin (LMT)

• Market Cap: ~$114 billion

• Forward P/E: ~16x (slightly below its 5-year average of ~17x)

• Dividend Yield: ~2.7%

• Debt/EBITDA: ~1.3x

• Backlog: $156 billion (solid but trailing RTX)

Lockheed remains highly dependent on the F-35 program, which accounts for about 30% of revenue. Recent noise over program costs and delivery delays have sparked some criticism, but overall demand for advanced fighter jets remains strong as U.S. allies modernize fleets.

Investors are keen to see if international sales, particularly in Asia-Pacific and Eastern Europe, can accelerate — and whether management can maintain operating margins in the face of inflationary pressures.

What the Future Holds

Looking beyond this earnings season, both companies appear well-positioned to benefit from enduring macro tailwinds in global defense spending.

Geopolitical Drivers

Russia’s ongoing war in Ukraine, tensions in the South China Sea, and the possibility of a protracted conflict in the Middle East have heightened defense priorities in Washington and among NATO allies. Both RTX and Lockheed stand to benefit from increased missile defense, fighter jet, and surveillance system orders.

Budget Outlook

While concerns remain about potential spending cuts tied to U.S. deficit reduction efforts, defense budgets historically have remained resilient even under fiscal pressure. Indeed, the 2025 U.S. defense budget proposal tops $900 billion — an all-time high — and NATO allies have pledged to meet or exceed the 2% of GDP target for defense spending.

Operational Execution

For RTX, success hinges on resolving the engine recall efficiently and restoring margins at Missiles & Defense. For Lockheed, reducing F-35 costs and executing international expansion are critical to maintaining growth momentum.

Analysts expect both companies to deliver modest earnings growth over the next 12–18 months, with potential upside if geopolitical demand outpaces current expectations.

Conclusion: Which Earnings Will Hit Harder?

RTX and Lockheed Martin both face the earnings spotlight this month, and each carries specific challenges and opportunities.

RTX’s case: Undervalued relative to peers and its own history, but clouded by ongoing engine recall costs and inconsistent margins. Strong backlog and missile demand offer upside if management executes well.

Lockheed’s case: More stable operationally, with dependable cash flow and a strong dividend, but valuation already reflects much of its reliability and growth depends heavily on the F-35.

Key takeaways for investors:

✅ Both companies offer attractive yields and defensive qualities in an uncertain market.

✅ RTX may offer more upside if it can resolve its operational issues.

✅ Lockheed remains a more stable, lower-risk play but with more modest near-term upside.

✅ Geopolitical and budgetary support should sustain demand for both over the medium term.

For income-oriented investors and those seeking exposure to a sector with resilient demand, both stocks merit consideration. For those seeking a potential rebound story, RTX may carry higher risk — and potentially higher reward — if earnings surprise to the upside and management demonstrates progress.

As the defense sector regains investor attention, the upcoming earnings reports from these two titans could prove decisive in determining whether defense stocks finally get the re-rating that many argue they deserve.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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