RTX (NYSE: RTX) carries significantly less exposure to fixed-price defense contract risk than rival Lockheed Martin (NYSE: LMT), making it the stronger long-term investment.
The defense industry has undergone a notable shift in recent years, with major contractors facing mounting charges and delays tied to complex fixed-price development programs.
Companies like Boeing (NYSE: BA), Lockheed Martin, and to a lesser extent RTX have all grappled with cost overruns that have eroded investor confidence in the sector.
Lockheed Martin CEO Jim Taiclet described the dynamic in January 2024 as the U.S. government “taking advantage of that monopsony power,” forcing contractors into unfavorable pricing positions.
Taiclet previously 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.”
The pressure on contractors intensified in early 2026 when President Donald Trump signed an executive order instructing the Pentagon to penalize underperforming defense companies by restricting stock buybacks and corporate distributions.
Lockheed Martin’s fixed-price contracts accounted for $45.2 billion of its $75 billion in full-year 2025 sales, representing approximately 60% of the company’s total revenue.
RTX’s defense division, Raytheon, recorded $16.6 billion in fixed-price contract sales, representing 59% of Raytheon’s revenue but less than 19% of RTX’s total company sales.
Lockheed Martin carries greater exposure to complex and novel technology programs such as the F-35 strike fighter, the F-22 stealth fighter, the CH-53K King Stallion, and the Aegis Combat System.
RTX, by contrast, generates more revenue from proven, lower-risk technologies including Tomahawk missiles and advanced medium-range air-to-air missiles, known as AMRAAMs, in its backlog.
RTX also demonstrated a willingness to walk away from unfavorable deals, terminating a fixed-price development contract with a foreign customer and absorbing a $500 million charge rather than accepting ongoing risk.
Trading at 32 times estimated full-year earnings, RTX is more expensive than Lockheed Martin, which trades at less than 17 times, but its commercial aerospace exposure largely explains that premium.
GE Aerospace (NYSE: GE) trades at slightly less than 40 times earnings, providing a useful benchmark for valuing RTX’s commercial aerospace segment.
RTX generates approximately 30% of its segment operating profit from Raytheon, meaning the majority of its earnings come from the higher-valued commercial aerospace side of the business.
When applying a commercial aerospace multiple comparable to GE Aerospace, Raytheon’s implied valuation falls to just 13.5 times earnings, representing what analysts describe as an undeserved discount relative to Lockheed Martin.
Given RTX’s lower fixed-price contract exposure, its proven technology portfolio, and its commercial aerospace premium, the risk-reward case for RTX over Lockheed Martin remains compelling for long-term investors.
