Sector Watch: BA vs LMT vs RTX — Which Defense Giant Offers the Best Risk-Reward as Global Rearmament Accelerates

At first glance, all three companies look similar — massive defense contractors generating tens of billions in annual revenue. But the similarities end there. RTX Corporation is the revenue leader at approximately $88.6 billion in full-year 2025 revenue, followed closely by Boeing at roughly $89.5 billion (though Boeing's total includes its commercial aviation division), and Lockheed Martin at $75.1 billion. By market capitalization, however, the order shifts dramatically: RTX leads at $272 billion, Boeing sits at $178.7 billion, and Lockheed Martin trails at $152.3 billion.

The divergence in market cap relative to revenue tells a story about how the market values each company's earnings quality. RTX commands a premium because of its balanced portfolio — Pratt & Whitney dominates the commercial engine market, Collins Aerospace leads in avionics, and Raytheon provides missiles and defense electronics. Lockheed Martin's $152.3 billion market cap on $75.1 billion in revenue reflects its status as the most profitable pure-play defense contractor. Boeing's relatively modest $178.7 billion valuation on nearly $90 billion in revenue reflects the market's skepticism about its ability to convert revenue into sustainable profit.

Boeing's quarterly trajectory shows improvement: revenue climbed from $19.50 billion in Q1 2025 to $23.95 billion in Q4, and the company is reportedly setting up its next production surge after a surprise Delta Air Lines order, with a book-to-bill ratio of 2.3x. RTX also demonstrated steady growth, rising from $20.31 billion in Q1 to $24.24 billion in Q4. Lockheed Martin's revenue progression was more gradual, from $17.96 billion to $20.33 billion, reflecting the steadier nature of government contracts.

If revenue tells you how big a company is, margins tell you how well it is run — and here, the gap between Boeing and its competitors is staggering. RTX leads with a gross margin of 19.46% and an operating margin of 10.71%. Lockheed Martin is close behind at 11.42% gross margin and 11.47% operating margin (the near-parity between gross and operating margins reflects Lockheed's lean cost structure). Boeing, by contrast, posts a gross margin of just 7.57% and an operating margin of negative 3.40%.

Boeing's Q4 2025 net income of $8.22 billion looks impressive at first glance, but it was inflated by a $9.13 billion one-time item — strip that out, and the underlying business was still losing money operationally, with operating income of negative $815 million. The prior three quarters were unambiguously ugly: net losses of $5.34 billion in Q3, $611 million in Q2, and $37 million in Q1. The full-year picture is a company that cannot yet generate consistent operating profit from its core business.

Lockheed Martin's consistency is the standout. Quarterly net income ranged from $342 million (Q2 2025, likely impacted by timing) to $1.71 billion (Q1), summing to approximately $5.0 billion for the year. Its 20% return on equity demonstrates capital efficiency. RTX generated approximately $6.7 billion in net income across the year, with every quarter profitable — ranging from $1.54 billion in Q1 to $1.92 billion in Q3. Both companies run like well-oiled machines; Boeing remains a turnaround work-in-progress.

Valuation is where the investment thesis for each stock diverges sharply. Boeing's P/E ratio of 91.38 is optically extreme, but it is distorted by the one-time items and depressed earnings — the market is pricing in a recovery, not the current state. At $227.53 per share with EPS of just $2.49, Boeing is effectively a venture bet on aerospace recovery wrapped in a blue-chip wrapper.

Lockheed Martin trades at a P/E of 30.61 with EPS of $21.50, which is a premium to its historical average but justified by the strongest demand environment in decades. At $658.08 per share, it sits just below its 52-week high of $669.75, suggesting the market has already priced in significant backlog growth. The 0.72% dividend yield with a 59.4% payout ratio provides modest income, though the real attraction is the combination of defense backlog strength and capital returns.

RTX's P/E of 40.85 with EPS of $4.96 places it in the middle ground — more expensive than Lockheed on a P/E basis, but the market is paying for RTX's diversification premium and its massive $272 billion market cap suggests institutional conviction. Its dividend yield of 0.37% with a 56.4% payout ratio is lower than Lockheed's, reflecting RTX's preference for reinvesting in its three business segments. At $202.62, RTX is also near its 52-week high of $206.73.

All three stocks are trading near 52-week highs, which means investors buying today are paying up for the [geopolitical tailwinds reshaping the defense sector](/article/deep-dive-how-geopolitical-risk-affects-financial-markets-safe-havens-defense-spending-and-oil-price-shocks). The question is whether the rearmament cycle is a multi-year secular trend — which would justify current valuations — or a peak moment that will fade.

The balance sheet tells the most important story for risk-conscious investors. RTX has the strongest balance sheet of the three with a debt-to-equity ratio of just 0.61 — conservative by any standard and remarkable for a company of its size. Lockheed Martin's debt-to-equity of 3.23 is higher but manageable given its predictable government contract revenue and strong cash generation, with free cash flow per share of $11.94.

Boeing's balance sheet is the elephant in the room. A debt-to-equity ratio of 9.92 is extraordinarily high, and its tangible book value per share of negative $17.43 means that on a tangible asset basis, Boeing's liabilities exceed its assets. The book value per share of $7.10 is propped up by intangible assets. Free cash flow per share of negative $1.54 means Boeing is still burning cash. Its current ratio of 1.27 provides adequate short-term liquidity, but the overall balance sheet remains precarious.

For investors who prioritize capital preservation, this comparison is decisive. RTX's 0.61 D/E ratio gives it enormous financial flexibility to pursue acquisitions, increase dividends, or buy back shares. Lockheed's FCF of $11.94 per share (compared to RTX's $2.38 and Boeing's negative $1.54) makes it the best cash-generating machine of the three on a per-share basis. Boeing's negative FCF and towering debt load mean it has essentially no margin of safety if the commercial aerospace recovery stalls or defense contract wins slow.

The Iran-Israel strikes on February 28 are the most immediate catalyst, likely to accelerate defense procurement across the Western alliance. For Lockheed Martin, this means potential acceleration of F-35 orders and missile defense systems. For RTX, the Raytheon division's missile and defense electronics portfolio is directly aligned with the type of precision munitions being consumed in active conflicts. For Boeing, the defense upside is real but secondary to the commercial aerospace recovery story.

Beyond the immediate [geopolitical shock](/article/deep-dive-how-geopolitical-risk-affects-financial-markets-safe-havens-defense-spending-and-oil-price-shocks), the structural catalysts are powerful. NATO allies are committing to 2%+ of GDP on defense, the UK's £1 billion helicopter deal signals European rearmament is accelerating, and the massive backlog of maintenance and software contracts creates recurring revenue visibility for all three companies. The defense sector increasingly resembles a technology business, with companies like [Axon Enterprise](/article/axon-analysis-axon-enterprise-beats-q4-estimates-with-39-revenue-growth-as-public-safety-tech-pioneer-targets-6-billion-by-2028) demonstrating the premium the market assigns to defense-adjacent technology providers.

The risks are asymmetric across the three stocks. Boeing faces execution risk (can it ramp production without quality issues?), balance sheet risk (can it service its debt if recovery slows?), and reputational risk. Lockheed's primary risk is valuation compression — at 30.6x earnings near a 52-week high, any disappointment in contract wins or quarterly earnings could trigger a meaningful pullback. RTX's risk profile is the most balanced: its diversification provides a buffer, but its 40.85x P/E means the market is pricing in significant growth that must be delivered.