Overview
Two of the largest U.S. defense contractors have produced similar market returns over the past year, each up about 40%, but the underlying fundamentals and market pricing tell different stories. At the current quotes, Lockheed Martin (LMT) sits below its Fair Value estimate while RTX is trading above its Fair Value, creating a clear divergence in the value proposition for investors.
Snapshot of the metrics
| Metric | LMT | RTX |
|---|---|---|
| Price | $580.22 | $215.46 |
| Market Cap | $134.5B | $290.1B |
| P/E (LTM) | 21.3x | 37.6x |
| P/E (Fwd) | 19.1x | 29.4x |
| EV/EBITDA | 15.6x | 20.3x |
| Fair Value Upside/Downside | +12.3% | -8.3% |
| Analyst Upside | +5.4% | +11.0% |
| Gross Margin | 11.8% | 20.3% |
| ROIC | 25.3% | 9.0% |
| FCF Yield | 6.5% | 3.9% |
| Dividend Yield | 2.4% | 1.4% |
| Revenue Growth (4Y) | ~+12% | ~+38% |
| Piotroski Score | 9/9 | 8/9 |
| Beta | 0.11 | 0.30 |
| 1Y Return | +42.1% | +39.4% |
Value versus growth in plain terms
Lockheed Martin's valuation metrics present a value-oriented case. The company trades at a forward P/E of 19.1x and posts a Piotroski score of 9/9. Its free cash flow yield is 6.5% and the firm is assigned a Fair Value of $651.74, implying upside from the current price of $580.22. The forward EPS estimate of $30.51 suggests an implied earnings increase of roughly 42% versus the last twelve months, indicating meaningful projected earnings acceleration for a company typically categorized as a value stock. In addition, Lockheed Martin has raised its dividend for 23 consecutive years, underscoring sustained capital-return discipline.
RTX's narrative is more growth-oriented. Revenue over four fiscal years has climbed from $64.4 billion to $88.6 billion, a jump driven largely by Pratt & Whitney's jet-engine aftermarket and Collins Aerospace benefiting from commercial aviation's recovery. RTX's gross margin is 20.3%, nearly double Lockheed's 11.8%, reflecting the heavier commercial aerospace mix. That performance, however, comes with a higher multiple: a forward P/E around 29.4x and a Last Twelve Months P/E of 37.6x. With RTX priced approximately 8.3% above its Fair Value, much of the growth story appears to be reflected in the current valuation.
What analysts are saying
There has been a clear divergence among analysts. Fifteen analysts have revised RTX earnings estimates higher, while seven have reduced forecasts for Lockheed Martin. The downward revisions for Lockheed Martin relate in part to the company losing the NGAD - Next Generation Air Dominance - fighter contract to Boeing, which represents a tangible headwind for its Aeronautics segment. At the same time, demand for missiles such as PAC-3, HIMARS and JASSM and international defense spending lift the company's broader backlog.
Capital efficiency - where LMT separates itself
Return on invested capital is a major differentiator. Lockheed Martin posts an ROIC of 25.3% compared with RTX's 9.0%. That gap is substantial and indicates Lockheed Martin generates nearly three times the return on each dollar of invested capital. The firm's reported return on equity reached 89.2%, a figure reflecting aggressive share repurchases and other capital-return strategies. RTX's ROE sits around 12% and its lower ROIC suggests the legacy integration following the Raytheon and United Technologies combination still exerts pressure on overall capital efficiency.
Bull and bear viewpoints
- Lockheed Martin bulls point to undervaluation relative to Fair Value, top-tier capital efficiency, strong missile and international demand, a near-zero beta of 0.11 that can stabilize portfolios, and a perfect Piotroski score.
- Lockheed Martin bears highlight the loss of the NGAD contract, concentration risk around the F-35 program, relatively modest revenue growth, seven downward EPS revisions and a comparatively thin 11.8% gross margin.
- RTX bulls highlight the fastest revenue growth in the sector, gross margins above 20%, the recovery cycle at Pratt & Whitney and Collins Aerospace that may have further to run, 15 upward EPS revisions and analyst upside of about 11%.
- RTX bears stress the high price investors are paying - a 37.6x LTM P/E and trading above Fair Value - trading close to 52-week highs, potential execution risk on the GTF engine program and a modest 1.4% dividend yield.
Investment takeaways
For investors focused on valuation and capital returns, Lockheed Martin represents the cleaner risk-adjusted option under current market prices: it is trading below its Fair Value, offers a higher free cash flow yield and demonstrates strong capital allocation metrics. Conversely, for investors oriented toward revenue growth and the commercial aerospace recovery, RTX provides a legitimate growth trajectory, but that inclination comes with the acknowledgment that the market may already price in much of the expected expansion.
Note: Historical data limitations apply to certain analytic platforms.