Lockheed Martin (NYSE: LMT) and RTX Corporation (NYSE: RTX) are titans in the aerospace and defense industry, often mentioned in the same breath due to their comparable size and market influence. With revenue bases hovering around $67 billion and market capitalizations in the $110-120 billion range, both companies present compelling investment opportunities. Currently trading at approximately 1.7 times their revenue, LMT and RTX stocks might appear similar on the surface. However, digging deeper reveals key differences in their recent performance, growth trajectories, and profitability. This analysis offers a comparative look at these two industry giants to help investors make informed decisions. We will explore their historical stock performance, revenue growth, profitability, and valuation to determine which might offer better returns in the coming years.
Historical Stock Performance: LMT vs RTX and S&P 500
Over the past three years, both Lockheed Martin and RTX have experienced gains, but their paths and magnitudes differ. Since early January 2021, LMT stock has surged by 25%, climbing from around $355 to approximately $450. In contrast, RTX stock has seen a more modest 15% increase, moving from about $70 to $80 during the same period. Interestingly, this performance aligns closely with the S&P 500’s roughly 25% growth over this timeframe.
However, the annual returns reveal a more nuanced picture. In 2021, LMT showed flat growth (0%), while RTX impressively gained 23%. 2022 saw a significant reversal, with LMT soaring by 37% and RTX following with a 19% increase. 2023 (Year-to-Date) witnessed both stocks decline, LMT by 7% and RTX more sharply by 20%. This annual breakdown indicates that both LMT and RTX have underperformed the S&P 500 in 2021 and 2023, highlighting the challenge even for industry leaders to consistently outperform the broader market. This volatility underscores the importance of considering long-term trends and company-specific factors when evaluating these stocks.
Revenue Growth Analysis: RTX Outpaces LMT Recently
Examining revenue growth reveals a notable divergence between RTX and Lockheed Martin. Over the last three years, RTX has demonstrated a superior average annual revenue growth rate of 14.2%, significantly outpacing Lockheed Martin’s 3.4%. This difference highlights varying growth drivers and market dynamics impacting each company.
Lockheed Martin’s revenue expansion has been primarily fueled by increased production volumes across several key programs, including Sikorsky helicopters, the AC-130 gunship, Long Range Anti-Ship Missile (LRASM), and the Joint Air-to-Surface Standoff Missile (JASSM) program. Furthermore, growing demand for F-35 aircraft and national security space programs continues to bolster Lockheed Martin’s sales, a trend expected to persist in the near future.
On the other hand, RTX Corp initially faced headwinds in its commercial aviation sector due to the pandemic, which negatively affected its commercial OEM and aftermarket sales. However, this trend has since reversed. The recovery in air travel and increased demand for aircraft parts have propelled sales growth for both Pratt & Whitney and Collins Aerospace Systems segments, becoming significant drivers for RTX’s recent revenue surge. Despite this strong overall revenue growth, RTX stock has faced pressure in the current year due to the substantial recall of over 1,000 Pratt & Whitney engines and the associated financial implications. Interestingly, when considering the last twelve-month period, Lockheed Martin’s revenue growth of 4.6% surpasses RTX’s 1.6%. Looking ahead, projections suggest that RTX is poised for faster revenue growth compared to Lockheed Martin over the next three years, indicating a potential shift in growth dynamics.
Profitability and Financial Health: LMT’s Edge
Profitability metrics further differentiate Lockheed Martin and RTX. Lockheed Martin has consistently maintained a stronger operating margin. While Lockheed Martin’s operating margin has slightly decreased from 13.3% in 2019 to 11.2% in 2022, RTX Corp’s operating margin also saw a decline from 12.7% to 10.9% during the same period.
Analyzing the last twelve months, Lockheed Martin’s operating margin stands at a robust 13.2%, significantly higher than RTX’s 7.4%. This indicates that Lockheed Martin is currently more efficient in converting revenue into profit. Beyond profitability, financial risk assessment also favors Lockheed Martin. The company’s debt as a percentage of equity is a conservative 15%, much lower than RTX’s 30%. Additionally, Lockheed Martin holds a higher cash cushion, with cash representing 6% of its assets compared to RTX’s 3%. These figures suggest that Lockheed Martin possesses a stronger financial position with lower leverage and greater liquidity, offering more resilience in uncertain economic times.
Valuation Metrics: Is RTX Undervalued?
Considering valuation, particularly Price-to-Sales (P/S) ratios due to the volatility in Price-to-Earnings (P/E) and Price-to-EBIT ratios, both LMT and RTX are expected to deliver similar returns in the next three years. However, a closer look at historical valuation averages suggests RTX might be relatively more attractive from a valuation standpoint currently.
Lockheed Martin’s stock is currently trading at a P/S ratio of 1.7x, which is in line with its five-year historical average of 1.6x. In contrast, RTX Corp’s stock is also trading at a P/S ratio of 1.7x, but this is significantly below its five-year average of 2.3x. This comparison implies that RTX is currently trading at a discount relative to its historical valuation, while Lockheed Martin is trading closer to its historical norm. This valuation gap could suggest potential upside for RTX stock as its valuation multiple potentially reverts towards its historical average.
Investment Outlook: Similar Returns Expected, But Consider…
In conclusion, while both NYSE: RTX and Lockheed Martin (NYSE: LMT) stocks operate within the same industry and share similar market characteristics, they exhibit key differences in revenue growth, profitability, and valuation. RTX has demonstrated stronger recent revenue growth and appears potentially undervalued compared to its historical P/S ratio. Lockheed Martin, on the other hand, showcases superior profitability and a more robust financial position.
Despite these distinctions, projections based on Trefis Machine Learning analysis indicate that both LMT and RTX are likely to offer similar returns in the range of 15%-20% over the next three years. For investors, the choice between Nyse Rtx Compare and LMT might depend on their investment priorities. Investors prioritizing growth and seeking potential valuation upside might find RTX more appealing. Conversely, those favoring stability, profitability, and financial strength might lean towards Lockheed Martin. Ultimately, both stocks represent solid investment options within the aerospace and defense sector, with anticipated comparable returns in the medium term. It is always recommended to conduct thorough research and consider individual investment goals and risk tolerance before making any investment decisions.
