RTX vs. Lockheed Martin: Which Defense Stock to Consider in 2025?

Core Insights - The article discusses the rising demand for defense contractors like RTX Corporation and Lockheed Martin due to escalating geopolitical threats and increasing global defense budgets [1][22]. Summary by Sections RTX Corporation - Recent Achievements: RTX reported an 8% organic growth in sales in Q1 2025, driven by its commercial aftermarket and defense sectors, with defense bookings totaling $9 billion [3]. - Commercial Growth: The improvement in commercial air traffic has led to a backlog of $125 billion for RTX's commercial business as of March 31, 2025, due to increased demand for new aircraft and aftermarket services [4]. - Financial Stability: As of March 31, 2025, RTX had cash and cash equivalents of $5.16 billion and long-term debt of $38.24 billion, indicating a solid solvency position for short-term investments in advanced defense technologies [5]. - Challenges: The imposition of tariffs by the U.S. government and counter-tariffs from other nations may adversely affect RTX's financial results, alongside ongoing supply-chain issues in the aerospace sector [6][7]. Lockheed Martin - Recent Achievements: Lockheed reported a 4.5% year-over-year sales increase in Q1 2025, supported by strong contract completions, with a backlog of $172.97 billion as of March 30, 2025 [8][9]. - Financial Stability: Lockheed's cash and cash equivalents were $1.80 billion, with long-term debt at $18.66 billion, indicating a moderate solvency position that may pressure its ability to meet debt obligations [10][11]. - Challenges: Labor shortages, particularly skilled labor, pose a threat to Lockheed's operations, especially as aircraft production ramps up post-pandemic [12]. Additionally, potential restrictions from China on mineral exports could adversely impact Lockheed's business [13]. Comparative Analysis - Zacks Estimates: RTX's 2025 sales and EPS are expected to improve by 4.4% and 7%, respectively, while Lockheed's sales are projected to increase by 4.5%, but its EPS is expected to decline by 4.6% [14][15]. - Stock Performance: Over the past three months, RTX has underperformed LMT, with declines of 9.2% and 7%, respectively, but RTX has outperformed LMT over the past year with a 12.2% increase compared to LMT's 0.5% [17]. - Valuation: Lockheed's forward earnings multiple is 16.58X, lower than RTX's 17.93X, but Lockheed's valuation appears stretched compared to its five-year median [18]. Final Insights - Both RTX and Lockheed are positioned well in the defense sector, supported by strong backlogs and government contracts. RTX offers diversified exposure but faces near-term challenges, while Lockheed has a larger backlog and shareholder-friendly plans but may face labor shortages and moderate solvency issues [22].