Northrop vs. Lockheed: Which Defense Stock Is a Stronger Player?

Aparajita Dutta

Thu, May 22, 2025, 10:35 AM 7 min read

As rising geopolitical tensions worldwide and increased global defense spending drive demand for advanced military technology, defense stocks like Northrop Grumman NOC and Lockheed Martin LMT have gained popularity over the past decade. Investing in these stocks offers exposure to stable government contracts, long-term growth prospects, and strategic innovation in aerospace, cybersecurity and missile defense systems.

While NOC brings a diversified portfolio to the table, with a broad array of products like space systems, military aircraft, missile defense, advanced weapons and long-range fire capabilities, mission systems, networking and communications as well as strategic deterrence systems, Lockheed, the world’s largest defense contractor, is best known for its flagship platforms (such as the F-35 fighter jet) as well as its leadership in missile defense and space systems.

With both companies boasting strong government contracts and long-term revenue visibility, investors eyeing the defense sector may find themselves weighing the relative advantages of these two industry giants. Let’s take a look at their fundamentals to determine which stock could be a better choice for a prudent investor.

Key Takeaways for NOC

Recent Achievements: Northrop recently announced that its board of directors has approved a 12.1% hike in its quarterly dividend (to $2.31 per share), marking its 22nd consecutive annual dividend hike. A solid cash distribution strategy is generally buoyed by the steady performance of a company in generating meaningful cash flows from its operations. To this end, it is imperative to mention that Northrop generated a solid cash flow from operating activities worth $481 million during the first quarter of 2025, which, in turn, must have enabled it to sanction the latest dividend hike.

NOC exited first-quarter 2025 with a record backlog of $92.80 billion, which bolsters future revenue generation prospects of this defense prime. To this end, it is imperative to mention that the company expects to generate sales in the range of $42.00-$42.50 billion for 2025, suggesting an increase of 3.6% from the prior-year reported figure.

Financial Stability: As of March 31, 2025, Northrop’s cash and cash equivalents totaled $1.69 billion. Its long-term debt was $14.17 billion as of the same date, while its current debt was nil. Considering this, we may safely conclude that Northrop holds a strong solvency position, at least over the short term. This, in turn, should enable the company to invest in advanced defense products and technologies, further strengthening its value in the defense industry.

Challenges to Note: The U.S. government’s recently implemented widespread tariffs on its major trading partners have raised concerns for companies like Northrop. Higher tariffs on imported goods and materials, along with potential retaliatory measures and renegotiation of trade agreements, could increase production costs and disrupt global supply chains. If additional tariffs are introduced or current measures are expanded, it could affect the company’s operations, especially in terms of raw material availability and operating costs.

Moreover, the company has been experiencing increased manufacturing costs, which have led to a $477 million pre-tax loss in the first quarter. This stems mainly from a recent process change aimed at accelerating the production rate of the B-21 program, along with a rise in projected material costs due to multiple factors, including inflation, geopolitical conflicts and microelectronics shortages. If these cost challenges persist, which could be exacerbated by the recent tariff situation, they may affect the company’s overall performance in the coming quarters.

Key Takeaways for LMT

Recent Achievements: Lockheed registered a solid 4.5% year-over-year improvement in its sales on the back of better-than-expected performance on contract completions at its Aeronautics, Rotary & Missions and Space business segments in the first quarter of 2025. Looking ahead, we may expect this defense contractor to continue recording solid sales growth, driven by significant contracts clinched during the first quarter and a substantial backlog worth $172.97 billion as of March 30, 2025.

Moreover, according to Lockheed’s management, the current global defense situation should sustain the company's backlog strength, with improved U.S. and international budget opportunities. This has given LMT confidence in generating stronger sales through 2027. This steady top-line growth, combined with operational improvements, will likely enable LMT to invest more than $10 billion in R&D and capital expenditures and return at least $18 billion to shareholders via dividends and repurchases over the next three years.

Financial Stability: Lockheed’s cash and cash equivalents totaled $1.80 billion as of March 30, 2025, while its long-term debt amounted to $18.66 billion. On the other hand, its current debt totaled $1.64 billion at the end of the first quarter. A comparative analysis of these figures suggests that while Lockheed’s cash position exceeds its current debt, the margin isn’t substantial. This indicates a moderate solvency position in the near term, suggesting that the company may face pressure in meeting its debt obligations if cash flow weakens. This may restrict LMT from carrying out its aforementioned capital deployment plans in the form of dividend payouts and share repurchases.

Challenges to Note: The shortage of labor affecting the aerospace-defense industry continues to pose a threat for defense primes like Lockheed. Considering that aircraft manufacturers have begun to ramp up their production rates following the steady recovery from the pandemic's impacts, labor shortages may affect aerospace stocks like Lockheed.

Moreover, in 2024, China specifically banned the export of certain minerals to the United States. If China further restricts the export of certain materials, takes further actions to enforce the existing sanctions on Lockheed, imposes additional sanctions or levies sanctions on its suppliers, teammates or partners, the company’s business could be adversely impacted.

How Do Zacks Estimates Compare for NOC & LMT?

The Zacks Consensus Estimate for Northrop’s 2025 sales implies a year-over-year improvement of 2.8%, while that for earnings suggests a 2.2% decline. NOC’s EPS estimates show mixed movement over the past 60 days.