The Rally in Lockheed Martin and RTX Can Continue: Here's Why

Stock Performance and Growth Drivers - Shares of Lockheed Martin (LMT) and RTX (RTX) have risen by 40% and 80% respectively since early 2024, with expectations to set new highs in 2025 [1] - Both companies are thriving due to increased global demand, sustained growth, robust cash flow, and ample capital returns, including dividends and share buybacks [1] - RTX outperformed in Q3 with top and bottom-line growth, while Lockheed Martin showed bottom-line growth, with both raising guidance for revenue and earnings [1] Financial Metrics and Capital Returns - Combined Q3 cash flow for both companies exceeded $4 billion, with a free cash flow (FCF) margin near 11$2.7 billion in Q3, with share counts reduced by mid-single digits and dividend yields near 2% [2] - Lockheed Martin announced a 5% dividend increase and a share repurchase authorization exceeding $10 billion, sufficient to reduce market cap by over 7.5% [3] - RTX is expected to increase its annual dividend distribution in late spring 2025, with mid-single-digit CAGR growth in dividend distributions [3] Analyst Sentiment and Price Targets - Analysts' sentiment supports aerospace and defense stocks, with Lockheed Martin rated as a Moderate Buy and RTX as a Hold [4] - RTX is forecasted to advance significantly, with analysts projecting a 30% upside following Q3 results, while Lockheed Martin's potential gain is narrower [4] - Lockheed Martin's shares pulled back over 5% post-Q3, presenting a buying opportunity, while RTX traded at all-time highs but may face a similar pullback [5] Institutional Ownership and Market Dynamics - Institutions own 75% of Lockheed Martin and 85% of RTX, with selling activity persisting throughout the year, potentially capping gains [5] - A price pullback in Lockheed Martin could entice institutional buying, strengthening market tailwinds [5] Industry and Market Trends - Both companies benefit from record backlogs expected to expand through 2025, supporting sustained growth [2] - RTX's merger synergies continue to drive gains, with adjusted EPS up 16% compared to Lockheed Martin's low single-digit growth [2] - The aerospace and defense sector remains robust, with both companies well-positioned for continued growth and capital returns [1][2][3]