RTX vs. General Dynamics: Which Defense Stock Offers More Upside?

RTX and General Dynamics are poised to benefit from increasing global defense budgets and a recovering commercial aerospace sector, despite facing common industry risks from supply chain constraints and labor shortages. While RTX has demonstrated stronger recent stock performance, General Dynamics is presented as a more compelling investment opportunity due to its superior capital efficiency, evidenced by a higher Return on Equity, and a more attractive valuation with a lower forward earnings multiple compared to RTX.

Analysis

Both RTX Corp. and General Dynamics are well-positioned to capitalize on robust secular tailwinds, including rising global defense budgets and a recovery in commercial aerospace. The proposed U.S. fiscal 2026 defense budget of $1.01 trillion specifically allocates funds that favor both companies' core competencies—missile defense and space for RTX, and naval shipbuilding for GD. Both firms also exhibit solid liquidity and are actively returning capital to shareholders. However, key divergences emerge upon closer inspection. While RTX has shown stronger recent stock performance, surging 32.8% over the past year compared to GD's 7.1%, it trades at a significant valuation premium with a forward P/E of 24.94 versus GD's 19.51. Furthermore, General Dynamics demonstrates superior capital efficiency, reflected in a higher Return on Equity (ROE). This is reinforced by diverging analyst sentiment; GD's 2025 earnings estimates have moved north, forecasting 11.5% EPS growth, while RTX's estimates have trended south, implying more modest 3.5% growth. Both companies face common industry risks from high labor attrition (14.5%) and persistent aerospace supply chain constraints, which could delay revenue and impact operating results.

Key Decisions for Investors

• Given General Dynamics' more attractive valuation at a 19.51 forward P/E, superior capital efficiency indicated by a higher ROE, and positive analyst estimate revisions, it presents a more compelling case for value-oriented investors seeking exposure to the defense sector.
• Investors should be cautious of RTX's considerably higher valuation (24.94 forward P/E) and the negative trend in its earnings estimates, which suggest its recent stock outperformance may not be sustained.
• Monitor key industry risks for both companies, specifically labor attrition rates and commercial aerospace supply chain resolutions, as persistent issues in these areas could negatively impact production timelines and future profitability.
• Despite RTX's stronger one-year price momentum, the combination of a Zacks #4 (Sell) rank for RTX versus a #3 (Hold) for GD, alongside GD's stronger cash flow growth of 170.5%, may warrant a portfolio re-weighting in favor of General Dynamics.