3 Defense Stocks Benefiting from Increased Military Budgets

As global military budgets expand due to rising security demands and advancements in technology, top defense stocks RTX Corporation (RTX), Lockheed Martin (LMT), and General Dynamics (GD) stand out as beneficiaries of this growth. These companies are well-positioned to capitalize on the sector's upward momentum, making them compelling picks for investors seeking exposure to defense industry gains.

In 2023, the global aerospace and defense industry achieved a record-high revenue of $829 billion, an 11% increase from the previous year, signaling a robust growth trajectory. The United States remains the dominant force in military spending, dedicating $916 billion to defense, more than 40% of global military expenditure.

Cybersecurity and cyber warfare, AI-driven autonomous systems, the growing space domain, advanced manufacturing, and electromagnetic spectrum warfare are pivotal forces reshaping the future of defense. These advancements are driving demand for next-generation solutions and creating substantial investment opportunities for companies leading these technological transformations. As a result, the aerospace and defense industry is experiencing strong growth, with the market projected to reach $616.32 billion in 2024.

Considering these conducive trends, let’s examine the Air/Defense Services stocks in detail.

#Stock 3: General Dynamics Corporation (GD)

GD is a global aerospace and defense company with four segments: Aerospace (business jets and maintenance), Marine Systems (naval shipbuilding and support), Combat Systems (land combat vehicles and munitions), and Technologies (IT and mission support for military and federal clients).

On September 13, 2024, GD NASSCO announced a U.S. Navy contract to build up to eight more John Lewis-class oilers, starting with a $780 million award for the tenth ship. The full contract could exceed $6.7 billion.

It pays an annual dividend of $5.68, which translates to a dividend yield of 1.8% at the prevailing price levels.

During the fiscal third quarter that ended September 29, 2024, GD’s revenue increased 10.4% year-over-year to $11.67 billion. Its operating earnings grew 11.7% from the year-ago value to $1.18 billion. In addition, the company’s net earnings and EPS came in at $0.93 billion and $3.35, up 11.2% and 10.2% over the prior-year quarter, respectively.

Analysts expect GD’s EPS and revenue for the quarter ending December 31, 2024, to increase 22% and 15.6% year-over-year to $4.44 and $13.49 billion, respectively. It surpassed the Street revenue estimates in three of the trailing four quarters, which is impressive.

Over the past year, the stock has gained 26.5% to close the last trading session at $312.05. It soared 20.2% year-to-date.

GD’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

GD has a B grade in Momentum and Stability. It is ranked #18 out of 72 stocks in the Air/Defense Services industry.

Beyond what we have stated above, we have also given GD grades for Growth, Value, Sentiment, and Quality. Get all the GD’s ratings here.

#Stock 2: RTX Corporation (RTX)

RTX provides aerospace and defense systems for commercial airlines, military, and government clients, specializing in aircraft engines, defense solutions, and aerospace products through its Collins Aerospace, Pratt & Whitney, and Raytheon segments.

On November 12, 2024, Collins Aerospace, an RTX business, received a $19 million U.S. Department of Defense contract to equip UK Chinooks with a common avionics system, enhancing interoperability with U.S. forces and enabling seamless collaboration, reducing crew workload, and improving safety in joint operations.

On November 7, Pratt & Whitney, an RTX business, and Air New Zealand began a $150 million expansion of the Christchurch Engine Centre to boost MRO capabilities for the GTF engine, targeting up to 140 overhauls annually by 2032.

It pays an annual dividend of $2.52, which translates to a dividend yield of 2% at the prevailing price levels.

In the fiscal third quarter ended September 30, 2024, RTX’s sales increased 49.2% year-over-year to $20.09 billion. Moreover, adjusted net income attributable to common shareholders and adjusted EPS stood at $1.95 billion and $1.45, respectively, representing increases of 6.9% and 16% over the prior-year quarter.

Street expects RTX’s revenue and EPS for the quarter ending December 31, 2024, to increase 3.4% and 6.7% year-over-year to $20.60 billion and $1.38, respectively. It surpassed the consensus EPS and revenue estimates of the trailing four quarters.

The stock climbed 46.6% year-to-date and has returned 50.4% over the past year to close the last trading session at $123.37.

RTX’s POWR Ratings reflect strong prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.

It has a B for Growth, Momentum, and Sentiment. It is ranked #6 in the same industry.

To access RTX’s Value, Stability, and Quality ratings, click here.

#Stock 1: Lockheed Martin Corporation (LMT)

LMT is a global leader in aerospace and defense, offering advanced aircraft, missile defense systems, combat solutions, and space technologies primarily to the U.S. government and allied militaries.

On November 7, 2024, LMT, in partnership with the U.S. Navy and General Atomics, conducted the first live control flight demonstration of an uncrewed system using the Unmanned Carrier Aviation Mission Control Station (UMCS).

It pays an annual dividend of $13.20, which translates to a dividend yield of 2.3% at the prevailing price levels.

During the fiscal third quarter that ended September 29, 2024, LMT’s net sales increased 1.3% year-over-year to $17.10 billion. Its operating income grew 4.8% from the year-ago value to $2.14 billion. In addition, the company’s net earnings came in at $1.62 billion, and EPS amounted to $6.80, up 1% over the prior-year quarter.

Street expects LMT’s revenue for the fiscal year ending December to increase 5.4% year-over-year to $71.24 billion. Its EPS for the same year is likely to be $26.69. In addition, it surpassed the consensus EPS estimates in each of the trailing four quarters.

Shares of LMT have gained 27.2% over the past year and 24.9% year-to-date to close the last trading session at $565.96.

LMT’s bright prospects are apparent in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.

It has a B grade for Momentum, Stability, and Quality. Within the same industry, it is ranked #4.

Click here to see LMT’s ratings for Growth, Value, and Sentiment.

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RTX shares fell $0.01 (-0.01%) in premarket trading Wednesday. Year-to-date, RTX has gained 49.27%, versus a 26.77% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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