Key Points
- RTX and Lockheed Martin both beat Q2 earnings and revenue estimates, sending shares up 7% and 10%, respectively, and expanding their record contract backlogs.
- Neither company's backlog yet reflects the resumed Iran conflict, while an unenacted 2027 NDAA could threaten multiyear defense procurement contracts if not signed by October 1.
- Lockheed's backlog is nearly all defense-related with limited commodity risk, whereas RTX's backlog is 58% exposed to commercial aerospace risks like fuel prices and airline capacity.
- Special Report: Buy this stock tomorrow
The war trade has resumed in July, and earnings from two of the U.S.’s most prominent defense contractors are leading the tape. After weak Q1 reports and a tenuous Iran ceasefire, aerospace and defense stocks deepened their drawdowns as the market repriced the re-stock trade and institutional selling intensified. But now that the war is back on and Q2 reports from defense companies are rolling in, the repricing is being repriced. Does the defense trade have staying power this time?
What RTX and Lockheed Martin Earnings Tell Us About the Defense Trade’s Path Forward
Lockheed Martin Inc. (NYSE: LMT) and RTX Inc. (NYSE: RTX) are two of the largest U.S. defense contractors, and both their stocks soared at the start of the year. But the outbreak of the Iran war in late February actually marked the top of the defense trade, and shares of both companies declined 25% and 19% peak to trough, respectively, after making all-time highs in Q1. Poor Q1 earnings from Lockheed drove the deeper decline, while higher commodity prices also weighed on RTX’s commercial order book.
The Q2 reports flipped the script, with both companies beating earnings-per-share (EPS) and revenue estimates and adding to their record backlogs. And crucially, not a dollar of earnings or backlog space has factored in the resumption of hostilities in Iran.
One crucial caveat to the thesis: the 2027 National Defense Authorization Act (NDAA) has not yet been enacted following a failed cloture vote in the Senate. The debate is likely just noise and posturing between the Trump administration and Congress. Still, if the NDAA isn’t signed by October 1, no multiyear contracts for defense procurement can be distributed, and these contracts are the backbone of the RTX and LMT backlogs.
RTX: Clean Earnings Beat Has Stock Primed for New Highs
The drawdown in RTX shares is officially over following its Q2 2026 results. The beat was highlighted by 14.5% year-over-year (YOY) revenue growth, which topped analysts’ estimates by more than 8%. EPS of $1.89 also crushed the expected $1.66, and the backlog grew 22% YOY to a record $289 billion.
More than $43 billion worth of new orders were booked in the quarter, including $20 billion for the Raytheon division (i.e., defense). This is the company’s 8th consecutive beat, which may be why investors are willing to pay 30 times forward earnings for the stock.
An 8% earnings beat is rare, even for RtX, and it gave management the confidence to raise guidance for full-year sales, EPS, and free cash flow. The company now projects total 2026 EPS of $7.10 to $7.25, a 5% increase over its previous high-end estimate.
RTX shares jumped 7% on the release, but a looming issue clouds the celebration. The backlog is a mix of commercial and defense contracts, and the Collins Aerospace and Pratt & Whitney divisions account for $170 billion of the $289 billion total. Collins and Pratt are the aerospace wings of the company, with Raytheon making the weaponry, which means more than 58% of the total backlog is exposed to commodity risk through higher fuel prices and lower airline capacity—two factors exacerbated by the Iran war.
RTX shares are just a hair below their previous all-time high following the 7% earnings pop, and the technical signals are pointing toward more short-term gains. The stock now trades comfortably above the 50-day and 200-day moving averages, which are converging into a Golden Cross. The MACD indicator has also reached positive territory above the histogram, and a bullish cross hints at more upside to come.
Lockheed Martin: Headline Numbers Mislead, But Backlog Stronger Than Ever
On first glance, Lockheed Martin blew the market away in Q2 2026, beating top and bottom line estimates with EPS of $7.94 on $1.8 billion in net income.
This represents more than 400% YOY earnings growth, but that figure is flattered by the $1.6 billion losses absorbed by Lockheed in Q2 2025, which depressed the year-ago base. Still, the stock popped 10% on the day for a reason.
First, the backlog continues to reach record levels, growing to $230 billion, up from $193 billion at the end of 2025. The Q2 haul was especially impressive as Lockheed booked $65 billion in new orders in the period. Missiles and Fire Control (MFC) remains the shining segment, with a backlog of $87 billion for THAAD interceptors, GMLRS, HIMARS, and radar systems.
Additionally, Lockheed’s cash pile shows very real gains over the previous year’s quarter. Operating cash flow was $3.2 billion, and quarterly free cash flow came in at $2.25 billion. Management also boosted the top end of full-year revenue guidance to $81.75 billion, up from $80 billion in the previous quarter.
LMT shares had a deeper drawdown this spring, falling from an all-time high of $676 on March 2 to $491 by the end of June. The stock declined more steeply than RTX due to its poor Q1 earnings, but it may also have more upside given its unique exposure to the war in Iran. The company’s backlog is nearly all defense, meaning limited commodity risk compared to RTX.
The chart also shows a violent reversal, with the 10% pop breaking through both the 50-day and 200-day moving averages. The Relative Strength Index (RSI) has also moved above 50 into bullish territory, but the stock is still about 16% below the March all-time high. At 19 times forward earnings, LMT is cheaper than RTX, but its backlog is less diversified, and another sudden ceasefire would pressure Lockheed’s Q3 guidance.
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