Raytheon vs. Lockheed Martin: Which Stock Has More Upside?

Key Points

• President Trump is expected to trim defense spending by attempting to de-escalate tensions in Ukraine and Israel and as DOGE attempts to cut wasteful spending from the defense budget.
• Defense stocks will be impacted negatively in the wake of budget cuts.
• Lockheed is the largest defense contractor in the world and has the most exposure, which is why the stock is down nearly 27% from its highs. 

Defense stocks took a tumble heading into 2025 as President Trump returned to the White House for his second term. Trump has stated his intent as a peacemaker to bring the wars in Ukraine and Israel to a halt. While this is good news to the people and the countries, it also means potentially less money will be spent on weapons and defense budgets, ultimately leading to a deceleration in revenue growth for defense contractors.

Add in the effects of the Department of Government Efficiency’s (DOGE) efforts to cut waste and fraud by scrutinizing defense contracts and budgets across all departments of the government, resulting in a swift sentiment reversal for the group.

Two defense stocks in the aerospace sector immediately come to mind during geopolitical conflicts: Lockheed Martin Inc. NYSE: LMT and RTX Co. NYSE: RTX, formerly known as Raytheon. Both stocks surge during wars, providing essential defense and missile systems and military hardware. Investors may ponder which stock could have more upside this year amidst the movement to trim budgets and resolve geopolitical tensions. Let’s take a look at both.

Lockheed Martin: The World’s Largest Defense Contractor Has the Most Exposure

Shares of Lockheed Martin are down 26.9% from their high of $618.95 on Oct 22, 2024, and down 7.32% year-to-date (YTD) as of Feb 28, 2025. As the largest defense contractor in the world, its stock is literally a barometer of geopolitical tensions. The company posted record earnings in 2024 as tensions continued to rise. The stock nearly doubled during the three-year-long Ukraine-Russia war. 

Being the largest defense company means having the most exposure to wars. Logically, this would also mean Lockheed takes the worst of post-war budget cuts.

Lockheed Made Records in 2024, But the Writing Was On the Wall

The company saw its quarterly revenue peak in Q4 2023 at $18.87 billion. A year later, in Q4 2024, Lockheed's revenues fell 1.3% year-over-year (YoY) to $18.62 billion, falling short of Wall Street consensus analyst expectations of $18.87 billion, a $250 million miss. However, earnings remained strong as the company posted Q4 earnings-per-shares (EPS) of $7.67, crushing consensus estimates of $6.62 by $1.05. The weakness came from the deceleration in its classified contracts business.

Even Lockheed saw the writing on the wall in its forward guidance. For the full year 2025, the company sees EPS of $27.00 to $27.30, which is short of the $27.88 consensus estimates. Revenue is expected between $73.75 and $74.75 billion, with a midpoint at $74.25 billion, which is slightly higher than consensus analyst estimates of $74.11 billion.

This caused an immediate 10% stock selloff the following day. Lockheed's Achilles heel is its lack of revenue diversification. Nearly 75% of its 2024 revenues came from servicing contracts with the United States Department of Defense.

RTX: Diversification Is the Best Defense for Raytheon

Lockheed, RTX stock recently hit new all-time highs at $133.09, trading up 14.92% YTD as of Feb 28, 2025. The reason for the outperformance compared to Lockheed Martin’s stock is revenue diversification. RTX has three segments: Collins Aerospace, Pratt & Whitney, and Raytheon Technologies. From aerospace parts to aircraft engines to missile defense systems like the Global Patriot missile defense systems, RTX’s revenues are split almost evenly between government and commercial.

The Growth Engine is Still Running Driven By Commercial Business

RTX reported Q4 revenue growth of 8.5% YoY to $21.62 billion, beating consensus estimates of $20.54 billion. The company posted EPS of $1.54, also beating consensus analyst estimates of $1.38 by 16 cents. It’s important to note the backlog grew to $218 billion, of which $125 billion is for commercial customers and $93 billion is for defense.

RTX reported full-year 2025 guidance of EPS between $6.00 and $6.15 vs. $6.09 consensus estimates. Revenue is expected between $83 and $84 billion, with a midpoint of $83.5 billion. This falls short of the $84.43 billion expected by analysts. Cash flow is expected between $7 and $7.5 billion.

RTX is less exposed to defense spending downsizing as revenues are almost evenly split between commercial and defense, while the backlog is tilted 53.7% by $42.7% in favor of commercial contracts.