General Dynamics vs. Lockheed Martin: Which Defense Stock to Choose?

Equity markets experienced a significant decline amid escalating trade tensions, with the Dow Jones and S&P 500 suffering substantial losses. The market sell-off was precipitated by President Trump’s definitive stance on tariffs. Analyzing defense sector stocks, we find General Dynamics (NYSE: GD) presenting a more compelling investment opportunity compared to Lockheed Martin (NYSE: LMT). Currently, both stocks are valued similarly at approximately 17x forward earnings. However, our analysis suggests GD is poised to outperform LMT in the coming years, driven by its stronger revenue growth trajectory and superior profitability metrics.

This assessment is grounded in a comprehensive evaluation of multiple key factors, including historical revenue performance, investment returns, and comparative valuation metrics. In the subsequent analysis, we will delve deeper into the reasons supporting our conviction that General Dynamics represents a more attractive investment prospect in the defense industry over the next three-year horizon. But, if you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Image by John atlantis1@outlook.be from Pixabay

The Engines of Growth: How GD and LMT Are Expanding Their Sales

General Dynamics demonstrated a 7.5% average annual revenue growth from 2021 to 2024, rising from $38 billion to $48 billion. This contrasts with Lockheed Martin’s 2.0% average annual growth, which saw its revenue climb from $67 billion to $71 billion over the same timeframe. Furthermore, over the trailing twelve months, General Dynamics’ sales growth of 12.9% is notably stronger than Lockheed Martin’s 5.1%.

Increased production volumes in key programs, such as Sikorsky helicopters and missile systems, have fueled Lockheed Martin’s revenue growth over the recent years. Additionally, rising production contracts for the F-35 and national security space programs are contributing significantly to sales. We anticipate this growth trajectory to continue, supported by ongoing geopolitical instability that is expected to drive sustained defense spending.

General Dynamics’ revenue growth is underpinned by strong performance across its core business areas. The aerospace segment is a major contributor, with increased deliveries of aircraft, notably the G700, which began shipping in Q2, 2024, after regulatory approvals. The company’s marine systems are also driving growth, with higher production volumes on critical submarine programs. Complementing these, the combat systems division has seen sales boosted by the U.S. Army’s M10 Booker vehicle program.

Operating Margin Trends: LMT’s Classified Losses vs. GD’s G700 Costs

Between 2021 and 2024, Lockheed Martin experienced a significant drop in its operating margin, from 13.6% to 9.9%, largely due to a $1.4 billion loss within its classified programs in 2024. In contrast, General Dynamics saw a more moderate decrease in its operating margin, moving from 10.8% to 10.1%, with the initial delivery costs of the G700 aircraft contributing to this slight contraction.

Financial Risk Analysis: A Balance of Debt and Cash in Defense Stocks

When assessing financial risk, General Dynamics and Lockheed Martin present a relatively balanced picture. Although Lockheed Martin’s debt-to-equity ratio of 19% exceeds General Dynamics’ 15%, indicating slightly higher leverage, General Dynamics’ cash-to-assets ratio of 3% falls below Lockheed Martin’s 4.5%, suggesting a smaller cash reserve. In essence, General Dynamics demonstrates a stronger debt profile, while Lockheed Martin maintains a more robust cash position.

GD and LMT: Comparing 4-Year Stock Returns Against the S&P 500

From early 2021 to the present, General Dynamics (GD) stock has delivered a substantial 90% gain, rising from approximately $135 to $255, outpacing the S&P 500’s 55% increase over the same four-year period. While GD demonstrated positive annual returns throughout this timeframe (44% in 2021, 22% in 2022, 7% in 2023, and 4% in 2024), it underperformed the S&P 500 in 2023 and 2024.

Conversely, Lockheed Martin (LMT) stock has experienced a 45% increase, climbing from around $315 to $450, falling short of the S&P 500’s 55% gain. LMT’s performance was marked by significant volatility, with returns of 3% in 2021, 40% in 2022, -4% in 2023, and 10% in 2024. This resulted in LMT underperforming the S&P 500 in 2021, 2023, and 2024.

GD Stock: The Superior Defense Investment Choice?

Based on our analysis, General Dynamics emerges as the more favorable investment compared to Lockheed Martin. GD exhibits superior revenue growth, enhanced profitability, and a comparable financial risk profile. Furthermore, its valuation is more attractive. Currently, LMT stock trades at 20.1 times its trailing adjusted earnings of $22.31 per share, slightly above its three-year average P/E ratio of 19.6. Conversely, GD stock is trading at 18.6 times its trailing earnings of $13.63 per share, which is below its three-year average P/E ratio of 19.9. While the prevailing geopolitical climate benefits the defense sector as a whole, General Dynamics’ projected top-line growth, driven by the G700 aircraft, coupled with its slightly higher profitability, reinforces our preference for GD.

While General Dynamics presents a compelling investment case over Lockheed Martin, the High-Quality Portfolio, a curated list of 30 stocks with a proven track record of outperforming the S&P 500 over the past four-year period, offers another attractive option.

[1] Returns as of 3/4/2025
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates