Shares of defense and aerospace contractors often trade as “bond proxies,” but the sector has faced rising execution risk tied to fixed-price development programs and mounting program delays. Against that backdrop, analysts and investors are increasingly weighing how company-specific contract mix and technology exposure could affect earnings stability—an issue that matters when comparing Lockheed Martin and RTX.
Although the two firms operate in different mixes of military platforms and systems, RTX’s defense exposure is structured in a way that some investors view as less vulnerable to the cost-overrun dynamics that have hit parts of the industry. The view is strengthened by RTX’s commercial aerospace footprint, which can provide a valuation backstop when defense program risk rises.
Key takeaways
- Price move: The article does not provide a specific market price move for Lockheed Martin or RTX.
- Catalyst: Ongoing scrutiny of fixed-price defense development contracts and related cost overruns and delays.
- What to watch: Contract terms and program execution risk, especially in complex, technology-heavy platforms.
- Implication: RTX’s mix of contract types and its commercial aerospace exposure are cited as potential reasons it may merit a valuation premium versus Lockheed Martin.
What has been changing in defense contracting
For years, defense stocks were often treated as relatively stable investments because government customers—especially the U.S. and its NATO allies—support spending levels that are less exposed to typical cyclical demand swings. That durability usually came with a trade-off: slower growth compared with more economically sensitive sectors.
In recent years, however, investors have paid closer attention to execution risk tied to fixed-price development programs. Multiple defense contractors have faced charges and delays on programs structured around fixed pricing, where the contractor—not the government customer—absorbs more of the cost and timing risk when complexity increases or requirements evolve.
According to the article, company leaders have attributed some of this dynamic to the buyer’s negotiating leverage, describing a “monopsony environment” in which the government can set terms that force competitors to take on larger risk. The problem has been amplified by the increasing complexity of defense initiatives, ranging from advanced fighter aircraft and integrated air-and-missile defense systems to tanker and helicopter modernization programs.
Why investors are focusing on contract mix
One argument highlighted in the article is that RTX’s fixed-price exposure is smaller than Lockheed Martin’s, which could reduce the earnings volatility that comes with fixed-price overruns.
According to the article’s cited figures from full-year 2025 results, Lockheed Martin generated $45.2 billion of revenue from fixed-price contracts out of $75 billion in total sales, representing 60% of sales. By contrast, the article states that RTX’s Raytheon segment produced $16.6 billion of fixed-price contract sales and $11.2 billion of cost-type contract sales, with fixed-price making up about 59% of Raytheon’s sales while remaining under 19% of RTX’s total company sales.
The article also argues that the type of work matters. Lockheed Martin is described as having greater exposure to complex and novel technology programs, including platforms such as the F-35 strike fighter and other advanced systems. The implication is that higher technical complexity can increase the probability of scope changes, integration challenges, and program rework—factors that tend to raise the cost and timing risk in fixed-price agreements.
In contrast, the article says RTX generates more revenue from lower-risk, proven technologies, pointing to product areas in its backlog such as Tomahawk missiles and AMRAAMs. It also notes that RTX demonstrated willingness to step away from unfavorable fixed-price terms when it terminated a fixed-price development contract with a foreign customer and recorded a $500 million charge, according to the article.
Valuation premium and what it implies
Beyond contract risk, the article compares how the market prices each company’s earnings stream. It states that RTX trades at 32 times estimated full-year earnings versus less than 17 times for Lockheed Martin, implying that RTX commands a valuation premium.
According to the article, a key reason for that premium is RTX’s commercial aerospace exposure, citing GE Aerospace as a reference point with a valuation multiple slightly below 40 times. The article further asserts that about 30% of RTX’s segment operating profit comes from Raytheon.
Using the same multiple framework, the article concludes that Raytheon appears undervalued relative to Lockheed Martin. In the article’s view, if RTX’s commercial business supports a higher multiple, investors may be underestimating the extent to which Raytheon’s risk profile could warrant a better valuation.
Regulatory and policy pressure remains part of the equation
Execution risk in defense contracts is not only a company issue; it is also influenced by contracting policy. The article references an executive order issued in early January 2026 directing the Pentagon to ensure that future contracts—and certain renewals—include provisions that prohibit contractors from stock buybacks and other corporate distributions during periods of underperformance, noncompliance, or insufficient investment.
The market impact of such provisions may extend beyond cost overruns to capital allocation decisions, potentially affecting how investors evaluate management discipline and the likelihood of sustained earnings pressure if programs slip.
Bigger picture: what to watch next
With fixed-price contract execution still under focus, investors are likely to pay close attention to future contract terms, program milestones, and any additional policy actions that influence capital allocation during underperformance. Near-term guidance from defense contractors—particularly around cost estimates, schedule adherence, and backlog quality—will be important, alongside broader signals from government contracting priorities and defense spending plans.
