Lockheed Martin (NYSE:) and Rtx Corp (NYSE:) have diverged in performance following their Q4 reports, prompting investors to question whether one is a viable investment while the other may be facing turbulence. However, a closer look at the reports suggests that both companies exhibit strong fundamentals, but one appears to offer a more promising investment opportunity over the other.
While both companies reflect the robustness of the defense industry, they have distinct dynamics at play, notably in terms of market positioning and dividend distribution that impact their attractiveness to potential investors.
Comparing Lockheed Martin and RTX Corporation
Lockheed Martin and RTX Corporation operate within the aerospace and defense industry, with each company embodying unique characteristics that influence their financial performance. While Lockheed Martin primarily focuses on government spending and defense, RTX Corporation boasts a substantial commercial business segment that contributes to its growth. This differing emphasis is manifested in their Q1 results, with RTX experiencing revenue growth driven by commercial demand, while Lockheed Martin saw a marginal contraction in revenue. Nevertheless, both entities exceeded their consensus estimates and provided optimistic guidance for 2024.
Of particular note is the divergence in their guidance, particularly in terms of revenue and earnings. RTX, despite achieving an increase in its stock price post-release, issued weak revenue but strong earnings guidance, while Lockheed Martin exhibited the opposite trend. Notably, both companies have outlined a positive outlook for 2024, backed by substantial backlogs and a conducive market environment for sustained capital returns. The only potential obstacles to their execution are internal operational setbacks or external events outside their current purview. Importantly, their guidance aligns with their capital return prospects, which are poised for significant growth in the coming years.
Evaluating Value and Yield
Both RTX and Lockheed Martin are currently valued at 16.5 times their earnings for the year, and this valuation is anticipated to decrease to 14 times for the next year, aligning them with the broader market. Additionally, they offer above-average dividends in the range of 2.65% to 2.9%, presenting compelling incentives for potential investors. Both companies maintain low payout ratios and have a history of dividend increases, suggesting the likelihood of further distribution hikes. However, a notable distinction lies in the magnitude of these increases, with RTX executing smaller increments while Lockheed Martin implements more substantial adjustments. Furthermore, their dividend payments are complemented by share repurchases, which elevate the overall value proposition for investors.
In the case of Lockheed Martin, the 2.9% dividend yield was effectively amplified in 2023 through repurchases, with the company allocating a substantial sum towards dividends and repurchases. RTX heightened its repurchase activity by implementing an accelerated plan during Q4, further enhancing its value proposition.
Insights from Analysts’ Sentiment
Analysts maintain Hold ratings for both stocks, yet there are discernible differences in their post-release evaluations, with RTX demonstrating a favorable trajectory. Analysts covering RTX have begun to revise their price targets upward, with Bank of America even upgrading its rating to Neutral. Conversely, analysts evaluating Lockheed Martin have been lowering their price targets, a trend that may potentially restrict gains for the company in 2024.
From a graphical perspective, both stocks are experiencing upward trends, but RTX appears to be the more promising investment in the near term. Investors eyeing Lockheed Martin may find value in targeting the long-term trend line for a suitable entry point, with the $400 to $420 region potentially serving as a significant support level. On the other hand, RTX investors may witness an upward trajectory, albeit with some associated risk. Resistance at current levels may precipitate a price correction, with a critical level near $92 determining the potential for further market advances.
Reference: Original Post