Lockheed Martin and RTX Corporation: One to buy, one to let fly?

Lockheed Martin Corporation NYSE: LMT and RTX Corporation NYSE: RTX are moving in opposite directions following their Q4 reports, suggesting one market is a buy and the other a sell. 

However, the details within the reports don't live up to that expectation; instead, they support the idea that both stocks are buyable, but one is still the better buy.

Investors looking for solid business growth, ample free cash flow, market-beating dividends, distribution growth and share repurchases will be happy with what they find. These businesses are supported by underlying market strength, provided solid guidance, and are on course for sustained capital return growth in 2024 and 2025. 

What's the difference between RTX and Lockheed Martin? 

RTX and Lockheed Martin are in the aerospace and defense industry. While Lockheed Martin is a pure play on government spending and defense, RTX Corporation has a sizeable commercial business that helps sustain growth. 

The Q1 results reflect the difference between them, with RTX revenue growing on commercial demand and Lockheed Martin's contracting, if by a slim margin. However, the takeaway is that both companies beat their consensus estimates by wide margins and provided a solid outlook for 2024. 

They provided solid guidance with a shade of difference highlighting the importance of earnings to a stock's price. Both provided mixed guidance relative to the consensus, with revenue or earnings missing the consensus target while the other outperformed. 

The shade of difference is that RTX, whose share price rose following the release, provided weak revenue but strong earnings guidance, while Lockheed Martin did the opposite. 

The critical detail is that both companies guided the 2024 outlook for growth and have record backlogs to support it. The only things that could stop them from executing are internal failures or events outside their control, which are not in the picture now. More importantly, the guidance supports the capital return outlook for each, and it is substantial. 

Value and yield in the defense sector

Regarding value, RTX and Lockheed Martin align with each other and the broad market. They both carry a 16.5x P/E valuation for this year, which falls to 14x for next. 

However, the dividends are above average in the 2.65% to 2.9% range, providing additional incentives for investors. Both come with low payout ratios and a history of increases, so additional distribution increases are expected. The difference is that RTX has made smaller increases while Lockheed has larger, but share repurchases compound both payments. 

Lockheed Martin's 2.9% dividend yield was effectively doubled in 2023 by repurchases. The company spent $9.1 billion on dividends and repurchases, with $6 going to repurchases. The activity had its count down to 4.7% YOY at the end of the quarter. RTX upped the ante, executing an accelerated repurchase plan in Q4. It repurchased $10.3 billion in the quarter and $12.9 billion for the year, bringing its count down 7.75%. 

Analysts sentiment tips the scales: RTX comes out on top

The analysts rate both stocks at Hold, but there is a difference in the post-release activity that makes RTX the winner in this comparison. RTX analysts are raising their price targets, and it even got an upgrade to Neutral from Bank of America. On the other hand, Lockheed Martin analysts are lowering their price targets and may cap gains in 2024. 

The charts echo the news, outlook and analysts' sentiment. Both are in an uptrend, but RTX is moving higher now and will lead the pair this year. Investors interested in LMT may target the long-term trend line for an entry point. 

The $400 to $420 region could produce significant support. RTX investors may push this stock higher, but there is risk. There is significant potential for resistance at current levels that may induce a price correction. One critical level is near $92. A move above there could take this market up to retest the all-time high.