The U.S. Air Force Just Ordered $7.8 Billion in New Missiles, and These 2 Defense Contractors Will Profit

The U.S. Air Force awarded Lockheed Martin a $4.3 billion, seven-year contract for JASSM/LRASM missiles and RTX a $3.5 billion, six-year contract for AMRAAM missiles, totaling nearly $7.8 billion. While these awards are substantial, their annual revenue contribution is less than 1% for both companies, primarily serving to replenish existing backlogs. Critically, RTX's Raytheon division is poised to earn significantly higher profit margins (9.7%) on its contract compared to Lockheed Martin's Missiles and Fire Control division (4.2%), a key factor explaining RTX's higher sales multiple.

Analysis

The U.S. Air Force has awarded substantial, multi-year missile contracts to Lockheed Martin (LMT) for $4.3 billion and RTX Corporation (RTX) for $3.5 billion, securing revenue streams for both firms through 2033 and 2031, respectively. However, the annualized impact on top-line revenue is marginal, representing an increase of less than 1% for Lockheed and 0.7% for RTX, suggesting these orders primarily replenish existing backlogs rather than driving new growth. The critical analytical insight lies in the divergent profitability of the relevant business segments. RTX's Raytheon division demonstrates superior operational efficiency, commanding a 9.7% operating margin, which is more than double the anemic 4.2% margin reported by Lockheed's Missiles and Fire Control division. This significant profitability gap offers a fundamental explanation for the market's valuation disparity, with RTX trading at a 2.5x price-to-sales multiple versus LMT's 1.4x, indicating that investors are placing a premium on RTX's ability to convert sales into profit more effectively.

Key Decisions for Investors

• Investors should prioritize divisional profit margins over headline contract values when evaluating LMT and RTX, as RTX's superior 9.7% operating margin in its missile division is the key driver of its premium valuation.
• While the new contracts provide long-term revenue visibility, they do not materially alter the growth trajectory for either company, and positions should be managed based on existing fundamentals and profitability trends.
• For those holding Lockheed Martin, the notably low 4.2% operating margin in its Missiles and Fire Control division is a key risk factor to monitor, as it highlights a persistent drag on profitability despite securing high-value awards.