The U.S. Air Force Just Ordered $7.8 Billion in New Missiles, and These 2 Defense Contractors Will Profit
News Summary
The U.S. Air Force recently awarded Lockheed Martin and RTX Corporation new missile orders totaling nearly $7.8 billion. Lockheed Martin secured a $4.3 billion contract to produce Joint Air-To-Surface Standoff Missiles (JASSM) and Long-Range, Anti-Ship Missiles (LRASM), with deliveries extending to January 2033 for the USAF and allies including Finland, Japan, the Netherlands, and Poland. RTX Corporation was awarded a $3.5 billion contract to supply Advanced Medium Range Air-to-Air Missiles (AMRAAM), with deliveries through Q3 FY2031 for the USAF and a wide range of allies including Australia, Canada, Germany, Japan, Ukraine, and the UK.
Background
The U.S. Department of Defense regularly awards multi-billion dollar defense contracts, serving as a stable revenue stream for defense contractors. Lockheed Martin and RTX Corporation (formerly Raytheon Technologies) are leading global defense contractors with strong capabilities in missile systems and other military technologies. Currently, following President Donald J. Trump's re-election in November 2024, his administration typically favors maintaining or increasing defense spending to bolster the military capabilities of the U.S. and its allies, addressing global geopolitical challenges.
In-Depth AI Insights
While these large contracts appear to have a minor direct impact on company revenue growth, what is their true strategic and investment value? - Although the article notes that these contract values, when spread annually, contribute less than 1% to Lockheed Martin's and RTX's existing yearly revenues, their core value lies in solidifying the companies' order backlogs for many years to come, providing stable cash flow visibility. - Against a backdrop of escalating geopolitical tensions and ongoing global arms races, such long-term, large-scale missile orders reflect sustained demand and investment by the U.S. and its allies in specific defense capabilities, ensuring the steady development of these defense contractors' foundational businesses. - This also validates these companies' leading and indispensable positions in critical defense technology sectors, offering long-term stability and certainty to investors. Considering the differing profit margins in the missile businesses of both companies, how should investors evaluate their long-term profitability and valuation? - The article highlights that RTX's Raytheon division's operating profit margin (9.7%) on missile sales is significantly higher than Lockheed Martin's Missiles and Fire Control division's margin (4.2%), suggesting RTX may have a stronger advantage in cost control, operational efficiency, or product mix. - Despite Lockheed Martin securing the larger contract value, RTX is expected to earn more net profit from its contract due to its superior margin. This explains why RTX's stock trades at 2.5 times annual sales, higher than Lockheed Martin's 1.4 times. - For investors, RTX's profitability advantage suggests it may generate higher shareholder returns in the future. Even with a relatively smaller revenue scale, it could lead to healthier profit growth, making its internal efficiency improvements and business structure optimization worth monitoring. In the context of the re-elected Trump administration, how will future U.S. defense spending trends and the geopolitical landscape impact the investment outlook for defense contractors? - Given the Trump administration's