Lockheed Martin’s Stock Surges as Northrop Grumman and RTX Struggle

Northrop Grumman and RTX experienced declines of 12.2% and 8.8%, respectively, on April 22, while Lockheed Martin (NYSE: LMT) saw a gain of 1.9%. All three defense contractors reported earnings on the same day. Northrop significantly missed its sales and earnings targets and subsequently lowered its full-year outlook. Conversely, RTX anticipates an $850 million impact from tariffs on its full-year operating profit. Lockheed, however, reaffirmed its full-year outlook, marking a recovery following a 9.2% drop after its January report.

Lockheed Martin’s Business Resilience

Lockheed Martin operates across four diversified segments: Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space. Holding a substantial $173 billion order backlog, more than twice its annual sales, Lockheed’s F-35 program backlog alone is valued at about $33.2 billion as of Q4 2024. This extensive backlog is secured largely through long-term contracts with the U.S. government and allied nations, providing a buffer against economic downturns.

Lockheed Martin has reaffirmed its January guidance, expecting adjusted revenue growth of 4.3% for the full year 2025 and a 9.4% increase in free cash flow (FCF), along with a slight 3% decline in diluted earnings per share (EPS). In its recent earnings call, CEO Jim Taiclet expressed confidence in their ability to manage known tariff challenges. CFO Evan Scott noted:

We have protections within our supply chain to mitigate tariffs. In most cases, mechanisms are in place to recover the impact on our external contracts.

Despite the challenging economic conditions, Lockheed expects sales growth to accelerate through 2027, alongside consistent FCF growth and continuous investments in research, development, and capital expenditures. Notably, they plan to return an estimated $18 billion through dividends and stock buybacks.

Capital Returns and Growth Potential

Lockheed Martin’s robust cash flow allows for a significant capital return program. The company returned $1.5 billion to shareholders in the recent quarter through both dividends and stock repurchases. With plans to continue this trend, Lockheed aims for $18 billion in buybacks and dividends over the next three years, based on its current trajectory.

In the latest quarter, Lockheed distributed $796 million in dividends and $750 million in buybacks. The dividend yield currently stands at 2.9%, which could rise to approximately 5.5% if calculated solely on dividends. This illustrates the scale of its capital return strategy, fully funded by FCF without reliance on debt.

Lockheed has maintained a record of increasing dividends for 22 consecutive years, enhancing its attractiveness for investors. Additionally, strategic buybacks have contributed to a consistent increase in EPS, enabling it to keep its price-to-earnings (P/E) ratio at a relatively low level. With a projected adjusted EPS of $27.15 for 2025, Lockheed’s P/E stands at just 17.1.

Lockheed Martin: A Dependable Investment Choice

For risk-averse investors concerned about ongoing tariffs and trade issues, Lockheed represents a solid investment option. Its business model is relatively insulated from economic fluctuations and tariffs. The company generates substantial cash, allowing for robust dividend and share buyback initiatives.

Lockheed’s low growth is already reflected in its attractive valuation, positioning it well for value investors. The current 2.9% yield surpasses RTX’s 2.1% and Northrop’s 1.8%, reinforcing Lockheed’s appeal as a top choice for passive income in the defense sector.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool recommends Lockheed Martin and RTX.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.