RTX Beats Lockheed Martin on Risk -- Here's Why It's the Better Buy Long-Term

The comparison between Lockheed Martin (NYSE: LMT) and RTX (NYSE: RTX) isn't perfect, given RTX's substantial exposure to commercial aerospace. However, given that commercial aerospace stocks tend to command valuation premiums over defense companies, and RTX's defense business carries less risk than Lockheed Martin's, I would argue that the former is the better buy on a risk/reward basis. Here's why.

The defense industry is changing

Investors traditionally looked at defense stocks as relatively safe investments, as their customers, governments, and notably the U.S. government and its NATO allies, are seen as being as reliable as can be. In addition, defense spending isn't cyclical. As such, defense stocks were bought for their "defensive" qualities, with the trade-off being relatively slow growth.

While much of that argument still applies, there's been a discernible change in recent years, and it comes down to the difficulties companies like Boeing, Lockheed Martin, and RTX, to a lesser extent, have had with charges and delays on fixed-price development programs. Whether it comes from, in the words of Lockheed Martin CEO Jim Taiclet in January 2024, the U.S. government "taking advantage of that monopsony power" or the increasing complexity of defense projects like the F-35 strike fighter (Lockheed Martin) or the KC-46 Pegasus Tanker (Boeing), the result is the same: cost overruns, delays, and charges for the defense contractors.

Taiclet previously outlined a "monopsony environment" that gives "so much power to the buyer that some of the competitors feel that there are must-win programs for them that they will take tremendous risk on cost and pricing."

The pressure is likely to continue

These issues show no sign of abating, as in early January 2026, President Donald Trump issued an executive order instructing the Pentagon to "ensure that any future contract with any new or existing defense contractor, including any renewal, contains a provision prohibiting both any stock buy-back and corporate distributions by the contractor during a period of underperformance, noncompliance, or insufficient investment."

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Two reasons why RTX is better positioned

RTX's fixed-price contracts account for a much smaller share of its revenue than Lockheed Martin's. Digging into its full-year 2025 results, Lockheed Martin's fixed-price contracts accounted for $45.2 billion of its $75 billion in sales, representing 60% of its sales. In comparison, RTX's defense business, Raytheon, had $16.6 billion in fixed-price contract sales and $11.2 billion in cost-type contract sales, representing 59% of Raytheon's sales but less than 19% of RTX's total company sales.

The type of program matters, too. Simply put, Lockheed has relatively greater exposure to complex and novel technology programs such as the F-35 strike fighter, the F-22 stealth fighter, the CH-53K King Stallion (fly-by-wire helicopter), and the Aegis Combat System (integrated air and missile defense).

In contrast, RTX generates relatively more revenue from lower-risk, proven technologies such as Tomahawk missiles and advanced medium-range air-to-air missiles (AMRAAMs) in its backlog. Moreover, RTX demonstrated a willingness to walk away from unfavorable fixed-price contracts when it terminated a fixed-price development contract with a foreign customer and took a $500 million charge.

Image source: Getty Images.

RTX is the better buy over Lockheed Martin

Trading at 32 times estimated full-year earnings, compared to less than 17 times for Lockheed Martin, RTX is the more expensive stock, but that's largely due to its commercial aerospace exposure (GE Aerospace trades at slightly less than 40 times). RTX generates about 30% of its segment operating profit from Raytheon.

If you apply the same multiple to its commercial aerospace business as to GE Aerospace, then Raytheon is valued at 13.5 times earnings, an undeserved discount relative to Lockheed Martin. In my view, based on the reasons above, it should trade at a premium, making RTX the better buy.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing, GE Aerospace, Lockheed Martin, and RTX. The Motley Fool has a disclosure policy.