Lockheed Martin Vs. Raytheon Technologies: Which Is The Better Buy Post Q4 Earnings?

Lockheed Martin Corp LMT and RTX Corp RTX, aka Raytheon Technologies Corporation, are both significant players in the aerospace and defense industry in the U.S.

Both companies reported their fourth-quarter earnings on Jan. 23, before market hours.

RTX shares are trading higher after the Arlington, Virginia-based company reported better-than-expected Q4 financial results and issued FY24 EPS outlook above estimates. RTX delivered a 3.20% surprise on EPS and 0.48% surprise on revenue.

Lockheed Martin shares are also trading higher after the Bethesda, Maryland-based company also crushed consensus estimates for its Q4 financial results. Lockheed delivered an 8.82% surprise on earnings and 5.03% surprise on revenue.

Investors would be keen to know which is the better buy? Let's take a quick look at how these companies compare.

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In terms of stock performance, Raytheon stock has largely lagged Lockheed Martin stock over the past year. While, the former is down 9.35%, the latter is up 6.78%.

Order backlogs

Lockheed Martin has demonstrated steady revenue growth and strong profitability, driven by its diverse portfolio of products, including aircraft, missiles, and space systems. The company has a significant backlog of defense contracts and a history of positive earnings per share. Lockheed Martin’s backlog grew nearly $5 billion year-over-year by Q3, closing the quarter at a massive $140 billion.

On the other hand, Raytheon Technologies, formed after a merger, has also shown solid revenue growth and is focused on optimizing profitability. The company offers various aerospace and defense technologies, backed by substantial contract backlogs.

Backlog at the end of the fourth quarter was $196 billion, of which $118 billion was from commercial aerospace and $78 billion was from defense. Notable defense bookings during the quarter included: $2.8 billion for GEM-T production at Raytheon.

Top Line To Bottom

On a TTM basis, Lockheed generated a net income of $6.97 billion against revenue of $67.69 billion – that’s about 10.30%. RTX, on the other hand, generated $3.19 billion in net income against revenue of $67.09 billion on a TTM basis – 4.75%. I appears, Lockheed is doing a better job at translating the top line to the bottom line, so far.

Dividends

Lockheed Martin is known for its stable dividend yield. Lockheed stock’s current forward dividend yield is 2.75%. The five-year average annualized dividend growth rate of Lockheed Martin is 7.44% while the TTM YoY dividend growth rate is 6.58%.

On the other hand, Raytheon Technologies has a current forward dividend yield of 2.78%. The five-year average annualized dividend growth rate of RTX is -4.30% and the TTM YoY dividend growth rate is 7.41%. So, Lockheed easily scores over RTX in terms of dividend stability.

Both companies face risks associated with government contracts and global geopolitical factors.

Valuation Differences

Chart compiled using Yahoo Finance data.

Looking at stock valuations, while Lockheed Martin offers more favorable trailing earnings multiple, forward multiple valuations appear to side with Raytheon. Given the limited differences in forward valuations for the two companies, let’s look at analyst consensus ratings for validation.

Chart compiled using Yahoo Finance data.

Lockheed Martin appears to be better placed as per analyst consensus estimates, as compared to Raytheon Technologies. While the former has the potential to offer a 7.22% upside, the latter comes with a potential 4.9% upside.

Prima facie, Lockheed appears to be the better buy. But an assessment of the Q4 earnings will be able to give more insight into the outlook for these two stocks as analysts update their reviews and ratings.

Besides the differences discussed above, investors should review each firm’s revenue growth, profitability, market performance, and risk factors when making investment decisions. Additionally, monitoring global geopolitical developments is crucial due to the nature of their business.

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