Down 20% This Year Is RTX A Better Pick Over Lockheed Martin Stock?

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LMT: Lockheed Martin logo
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Lockheed Martin

We believe both Lockheed Martin stock (NYSE: LMT) and RTX Corp stock (NYSE: RTX) can see higher levels and will offer similar returns in the next three years. These companies are from the same aerospace and defense industry, with a similar revenue base of $67 billion and a similar market capitalization of $110-120 billion. Both LMT and RTX trade at 1.7x revenues. While RTX has seen superior revenue growth in recent years, Lockheed Martin is more profitable. In the sections below, we discuss the possible returns for both stocks in the next three years. We compare a slew of factors, such as historical revenue growth, stock returns, and valuation.

LMT stock has shown strong gains of 25% from levels of $355 in early January 2021 to around $450 now, while RTX stock has witnessed gains of 15% from levels of $70 in early January 2021 to around $80 now. This compares with an increase of about 25% for the S&P 500 over this roughly 3-year period.

However, the increase in both stocks has been far from consistent. Returns for LMT stock were 0% in 2021, 37% in 2022, and -7% in 2023 (YTD), while returns for RTX stock were 23% in 2021, 19% in 2022, and -20% in 2023 (YTD. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 21% in 2023 (YTD) – indicating that LMT and RTX underperformed the S&P in 2021 and 2023.

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In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the industrial sector, including BA, UNP, and UPS, and even for the mega-cap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could LMT and RTX face a similar situation as they did in 2021 and 2023 and underperform the S&P over the next 12 months – or will they see a strong jump? We believe both stocks will see higher levels and offer similar returns of 15%-20% in the next three years.

1. RTX’s Revenue Growth Is Better 

  • RTX’s revenue growth has been better, with a 14.2% average annual growth rate in the last three years, compared to 3.4% for Lockheed Martin.
  • Lockheed Martin’s revenue growth over the recent years has been led by higher production volume for its Sikorsky helicopter programs, AC-3, Long Range Anti-Ship Missile (LRASM), and the Joint Air-to-Surface Standoff Missile (JASSM) program, among others.
  • Lockheed Martin is seeing a higher volume of production contracts for F-35 and the national security space program driving its sales growth, a trend expected to continue in the near term.
  • RTX Corp’s commercial airplane business was hit during the pandemic, weighing on its commercial OEM and aftermarket sales. This trend has now reversed, with both Pratt & Whitney and Collins Aerospace Systems segments driving the company’s sales growth in the recent past.
  • However, RTX stock has been under pressure this year due to its recall of over 1,000 Pratt & Whitney engines and associated costs.
  • If we look at the last twelve-month period revenues, Lockheed Martin fares better with sales growth of 4.6% vs. 1.6% for RTX.
  • Our Lockheed Martin Revenue Comparison and RTX Corp Revenue Comparison dashboards provide more insight into the companies’ sales.
  • Looking forward, revenue for RTX is expected to grow at a faster pace than Lockheed Martin in the next three years.

2. Lockheed Martin Is More Profitable

  • Lockheed Martin’s operating margin has slid from 13.3% in 2019 to 11.2% in 2022, while RTX Corp’s operating margin fell from 12.7% to 10.9% over this period.
  • Looking at the last twelve-month period, Lockheed Martin’s operating margin of 13.2% fares better than 7.4% for RTX.
  • Our Lockheed Martin Operating Income Comparison and RTX Corp Operating Income Comparison dashboards have more details.
  • Looking at financial risk, Lockheed Martin fares better with its 15% debt as a percentage of equity lower than 30% for RTX. Also, its 6% cash as a percentage of assets is higher than 3% for RTX, implying that Lockheed Martin has a better debt position and more cash cushion.

3. The Net of It All

  • We see that RTX has seen better revenue growth, while Lockheed Martin is more profitable and has a better financial position.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe both will offer similar returns in the next three years.
  • That said, if we compare the current valuation multiples to the historical averages, RTX fares better. Lockheed Martin’s stock is currently trading at 1.7x revenues, close to its last five-year average of 1.6x. In comparison, RTX Corp is trading at 1.7x revenues, compared to its last five-year average of 2.3x.
  • Our Lockheed Martin (LMT) Valuation Ratios Comparison and RTX Corp (RTX) Valuation Ratios Comparison have more details.
  • We believe LMT and RTX will likely see gains of 15%-20% in the next three years, based on Trefis Machine Learning analysis.

While LMT and RTX may offer similar returns in the next three years, it is helpful to see how Lockheed Martin’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 LMT Return 1% -7% 81%
 RTX Return -1% -20% 35%
 S&P 500 Return 2% 21% 107%
 Trefis Reinforced Value Portfolio 2% 30% 569%

[1] Month-to-date and year-to-date as of 12/13/2023
[2] Cumulative total returns since the end of 2016

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