October 28, 2025
Defense Stocks: Guidance Raised on Higher NATO Spending
Defense stocks have been one of the best-performing areas of the market in 2025. Boosted by high levels of geopolitical uncertainty and significant increases to NATO defense budgets, the sector has delivered strong gains.
Recently, we got a glimpse into the performance of several big names in the defense space when Lockheed Martin, RTX Corp, and Northrop Grumman posted their earnings for the third quarter of 2025 on October 21. Here’s a look at revenue and earnings trends as well as order books and guidance as we head towards 2026.
Unprecedented Demand for Lockheed Martin’s Products
Let’s start with Lockheed Martin. It’s the world's largest defense contractor and operates in a range of areas including aeronautics, missiles and fire control, rotary and mission systems, and space.
Lockheed’s sales for the third quarter1 of 2025 amounted to $18.6 billion, up 8.8% year on year and slightly ahead of the $18.55 billion estimate2. Earnings per share (EPS) was $6.95, up 2.2% year on year, and significantly above analysts’ estimate of $6.36. Free cash flow for the period was $3.3 billion compared to $2.1 billion in the third quarter of 2024. At the end of the quarter, the company’s backlog stood at a record $179 billion - more than two and a half years’ worth of sales.
Zooming in on specific divisions, missiles and fire control saw strong growth, with sales here rising 14% year on year to $3.6 billion. Aeronautics - which produces F-35 fighter jets - also performed well, with sales jumping 11.9% to $7.3 billion.
In terms of guidance, Lockheed Martin raised the lower end of its 2025 sales guidance while increasing its earnings guidance for the year. It now expects sales of $74.25 billion to $74.75 billion and EPS of $22.15 to $22.35 versus previous guidance of $21.70 to $22.00.
Looking ahead, management said that the company is investing aggressively in both new digital technologies and physical production capacity in order to meet the defense priorities of the US and its allies. CEO Jim Taiclet noted that the company is seeing “unprecedented demand” right now and that the US Golden Dome missile defense system project is likely to be a major growth driver in the future.
RTX Sees Strong Munitions Orders
RTX - the world's largest aerospace and defense company - also posted earnings3 that were better than expected. For the quarter, its sales came in at $22.5 billion, up 12% year on year, and comfortably ahead of the consensus forecast of $21.3 billion. Adjusted earnings per share amounted to $1.70, up 17%, and well ahead of the consensus forecast of $1.41. Free cash flow rose 104% year on year to $4.0 billion.
Zooming in on the company’s defense segment, Raytheon, it saw sales of $7.0 billion, up 10% versus the prior year. This increase was driven by higher volume on land and air defense systems (including Patriot systems) as well as higher volume on naval programs. Adjusted operating profit in this segment was $859 million, $198 million higher than in Q3 2024. Management noted on the earnings call that during Q3, the company booked over $8 billion of orders for munitions, including $2.1 billion in orders for its AMRAAM air-to-air missiles - the largest order in the 30-year history of this program4.
Looking ahead, RTX raised both its full-year revenue and profit forecast. It now expects adjusted sales of $86.5 to $87.0 billion, up from $84.75 to $85.5 billion, and adjusted EPS of $6.10 to $6.20, up from $5.80 to $5.95. In terms of its backlog, this stood at $251 billion at the end of the quarter. Of this, $103 billion was defense.
On the back of this strong performance, several brokerage firms increased their price targets5 for the stock. Morgan Stanley went to $215 from $180 while Susquehanna went to $205 from $175.
Northrop Grumman Sees High Demand for Defense Systems
Finally, we have Northrop Grumman. It specializes in advanced weapons, aircraft, missile defense, mission solutions, and space, and is a vital defense partner to the US government.
For the third quarter6 of 2025, Northrop Grumman reported sales of $10.4 billion, up 4% year on year. Earnings per share was $7.67, up from $7.00 in the third quarter of 2024 and well ahead of the consensus forecast of $6.46. Free cash flow for the period was $1,256 million versus $730 million a year earlier. At the end of the quarter, the company’s backlog stood at $91.4 billion.
The highlight of Northrop Grumman’s Q3 report was its defense systems segment. This saw 14% growth in revenue and 46% growth in operating income. Performance here was boosted by higher volume on armament programs, increased volume from new awards across the Integrated Battle Command System (IBCS) program portfolio, and higher sales on Sentinel - its next-generation intercontinental ballistic missile (ICBM) system being developed for the US Air Force.
Looking ahead, the defense company increased its EPS guidance for 2025. It now expects EPS of $25.65 to $26.05 versus previous guidance of $25.00 to $25.40.
Since Northrop Grumman posted its Q3 earnings, several brokerage firms have raised their price targets7 for the stock. JP Morgan has increased its price target to $640 from $585 while Susquehanna has gone to $690 from $650.
Well Positioned for Growth
Based on these earnings, higher levels of defense spending - particularly from NATO countries - is having a profoundly positive impact on the performance of the world’s defense companies. In short, high demand for defense systems is translating to substantial revenue and profit growth for these companies along with record-breaking backlogs.
Footnotes:
1Lockheed Martin Newsroom, Lockheed Martin Reports Third Quarter 2025 Financial Results, as of October 21, 2025
2CNBC, Defense companies raise 2025 outlooks on higher demand, as of October 21, 2025
3RTX, RTX Reports Q3 2025 Results, as of October 21, 2025
4Investing.com, Earnings call transcript: RTX beats Q3 2025 forecasts, stock surges, as of October 21, 2025
5Investing.com, Rtx Corp (RTX), as of October 28, 2025
6Northrop Grumman, Northrop Grumman Reports Third Quarter 2025 Financial Results, as of October 21, 2025
7Investing.com, Northrop Grumman (NOC), as of October 28, 2025
