RTX Corporation (NYSE: RTX) holds a significant structural advantage over Lockheed Martin (NYSE: LMT) when it comes to exposure to fixed-price defense contract risk.
The distinction matters more than ever as the defense industry faces mounting pressure on traditional contracting models and government spending priorities.
Lockheed Martin’s fixed-price contracts accounted for $45.2 billion of its $75 billion in 2025 sales, representing roughly 60% of the company’s total revenue.
By contrast, RTX’s defense unit Raytheon posted $16.6 billion in fixed-price contract sales, amounting to less than 19% of RTX’s total company revenue.
That gap is not a minor accounting detail — it represents a meaningful difference in the financial risk each company absorbs when contracts run over budget or behind schedule.
In early January 2026, President Trump signed an executive order instructing the Pentagon to prohibit stock buybacks and corporate distributions from contractors deemed to be underperforming.
The directive added fresh urgency to concerns about cost overruns and financial discipline across the defense industrial base.
Lockheed Martin CEO Jim Taiclet previously described a “monopsony environment” where the U.S. government has enough power over contractors that some feel compelled to take on tremendous pricing risk on must-win programs.
That dynamic has contributed to a pattern of cost overruns, project delays, and unexpected charges that have weighed on contractor margins and investor confidence.
RTX’s substantial commercial aerospace exposure, which some analysts view as a complicating factor in direct comparisons with pure-play defense firms, actually strengthens its investment case.
If the same earnings multiple applied to GE Aerospace is used to value RTX’s commercial aerospace business, then Raytheon, RTX’s defense segment, is effectively valued at just 13.5 times earnings.
That implies an undeserved valuation discount on the defense side relative to what Lockheed Martin commands in the market.
The argument follows that RTX should trade at a premium to Lockheed Martin on a risk-adjusted basis, given its lower fixed-price contract exposure and diversified revenue streams.
Commercial aerospace has demonstrated stronger pricing power and more predictable cash flow dynamics than government fixed-price defense programs in recent years.
Taken together, the combination of lower contract risk, commercial aerospace upside, and an undervalued defense segment positions RTX as the more compelling long-term buy between the two defense giants.
