With $52.9 billion earmarked for critical munitions in the FY 2027 Department of War budget request, defense contractors are entering mid-2026 with significant structural advantages favoring scale and contract visibility.
The sector has ranked as the standout ETF theme of 2025, and multi-year backlogs across the major primes continue to lock in demand at a time when geopolitical risk shows no sign of fading.
Lockheed Martin (NYSE: LMT) trades at $525.02, up 10% year to date and 13% over the past year, with a forward P/E of 17, a dividend yield of roughly 3%, and an analyst target price of $625.16.
The company’s $194 billion backlog represents more than 2.5 years of sales and is anchored by recently signed multi-year framework agreements with the Department of War covering Patriot, THAAD, and PrSM systems.
CEO Jim Taiclet said the deals will “increase production rates of these critical systems by three to four times current rates,” locking in demand against a budget environment that is pushing for more munitions delivered faster.
FY2026 guidance was reaffirmed at $77.5 billion to $80.0 billion in sales and diluted EPS of $29.35 to $30.25, with operating profit expected to grow approximately 25% year over year.
The risk picture is not without blemishes, as Q1 2026 EPS of $6.44 missed the $6.70 consensus, free cash flow turned negative at -$291 million, and a $125 million unfavorable F-16 charge highlighted persistent fixed-price program exposure.
Northrop Grumman (NYSE: NOC) trades at $542.14, down 4% year to date but up 13% over 12 months, with a forward P/E of 20, a dividend yield of 2%, and an analyst target of $696.95.
The most significant development at Northrop is the B-21 program’s shift from drag to driver, with Aeronautics Systems swinging from a $183 million operating loss in Q1 2025 to $305 million in operating income in Q1 2026.
Backlog hit a record $95.61 billion, CEO Kathy Warden cited an “unprecedented global demand environment,” and the company secured a U.S. Air Force agreement to expand B-21 production capacity.
FY2026 guidance calls for sales of $43.5 billion to $44.0 billion and MTM-adjusted EPS of $27.40 to $27.90, though Q1 operating cash flow came in at -$1.656 billion on working capital timing.
RTX (NYSE: RTX), parent company of Raytheon, Pratt and Whitney and Collins Aerospace, trades at $177.41, down 3% year to date but up 30% over the past year, with a forward P/E of 26 and an analyst target of $215.73.
RTX is the only one of the three major primes to raise its 2026 guidance this cycle, with Q1 adjusted EPS of $1.78 beating the $1.52 consensus by 17%, marking the fourth consecutive quarterly beat.
Management lifted full-year sales guidance to $92.5 billion to $93.5 billion and adjusted EPS to $6.70 to $6.90, supported by the largest backlog of the three primes at $271 billion, split $162 billion commercial and $109 billion defense.
CEO Chris Calio pointed to “organic sales and adjusted operating profit growth across all three segments,” with Raytheon adjusted operating profit up 25% on Patriot, GEM-T and naval munitions demand and Pratt commercial aftermarket up 19%.
Risks at RTX include the Pratt and Whitney powder metal matter requiring accelerated GTF fleet inspections and removals, ongoing tariff headwinds at Collins and Pratt, and pending DOJ deferred prosecution agreements and SEC investigations.
Across all three names, the shared tailwind is a FY2027 budget request allocating $60 billion to munitions development and procurement, rewiring how Washington buys and replenishes weapons systems.
Lockheed offers the highest backlog-to-sales ratio and the cleanest yield, Northrop carries the most operational leverage as B-21 scales, and RTX provides the broadest diversification alongside the only raised 2026 outlook of the group.
With framework agreements accelerating procurement timelines and geopolitical demand showing no sign of softening, execution quality rather than order intake will be the primary differentiator for these three primes through the remainder of the year.
