RTX (NYSE: RTX) presents a stronger long-term investment case than Lockheed Martin (NYSE: LMT), driven by lower fixed-price contract exposure and a valuable commercial aerospace division.
The defense investment landscape has shifted considerably in recent years, as contractors face mounting pressure from cost overruns and delays on complex government programs.
Lockheed Martin CEO Jim Taiclet described in January 2024 the U.S. government “taking advantage of that monopsony power,” highlighting the structural disadvantage defense contractors increasingly face.
Taiclet further 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.”
Programs such as Lockheed Martin’s F-35 strike fighter and Boeing’s KC-46 Pegasus Tanker have become emblematic of the cost overrun problem that continues to plague the defense sector.
Lockheed Martin carries substantial exposure to fixed-price contracts, with $45 billion of its $75 billion in 2025 revenue derived from such arrangements, creating meaningful financial risk.
RTX’s Raytheon defense business, by contrast, reported just $16.6 billion in fixed-price contracts in 2025, against the company’s overall revenue of $88.6 billion, a far more manageable ratio.
RTX has also demonstrated a willingness to walk away from unfavorable contract structures, a discipline that further reduces the risk profile of its defense operations relative to peers.
Defense contractors have drawn criticism from both Republican and Democratic politicians, including President Trump, for returning capital to shareholders through buybacks and dividends while failing to deliver on key programs.
RTX’s commercial aerospace segment, operated through Pratt & Whitney and Collins Aerospace, provides a meaningful revenue buffer that Lockheed Martin simply does not possess.
Commercial aerospace has demonstrated stronger pricing power and more predictable cash flow dynamics than government fixed-price defense programs, supporting a valuation premium for RTX over pure-play defense names.
Applying the same earnings multiple to RTX’s commercial aerospace business as to GE Aerospace implies that Raytheon is valued at just 13.5 times earnings, a discount that appears unwarranted given the company’s lower risk profile.
Bulls on Lockheed Martin argue that fixed-price contract risks are already reflected in the stock’s valuation, and the company’s robust backlog does support strong medium-term revenue and cash flow visibility.
Nevertheless, when weighing risk-adjusted returns, RTX’s combination of a less exposed defense business and a premium commercial aerospace franchise makes it the more compelling long-term investment.
