Hey there, bargain hunter.

The U.S. military budget crossed $1 trillion in 2026. That’s one of the fastest increases in modern defense history. And the proposed 2027 budget is even bigger.

President Trump has been vocal about pushing the military budget toward $1.5 trillion for fiscal year 2027, building on what was enacted for 2026 and nearly $900 billion in 2025. For companies like Lockheed Martin, RTX, and Northrop Grumman, that isn’t just a headline — it translates directly into contract flow.

Defense stocks are having a real year. The part worth understanding is where the actual value sits, because not all three primes are trading at the same risk profile right now.

The Backdrop

The fiscal 2027 National Defense Authorization Act (as released out of committee in both the House and Senate) includes $1.15 trillion in funding. Ongoing conflicts — Ukraine, the Middle East, rising Indo-Pacific tensions — are forcing governments to restock weapons stockpiles and upgrade capabilities at a pace not seen in decades. NATO rearmament is a separate structural tailwind that doesn’t disappear regardless of what happens with Iran ceasefire talks.

Goldman Sachs framed economic security as a prominent investment theme for 2026, with NATO commitments and reindustrialization creating multi-year visibility for the sector. The ‘Big 5’ contractors — Lockheed, Boeing, RTX, Northrop, and General Dynamics — collectively account for nearly 30% of Department of Defense obligated contract funding.

Three Companies, Three Different Stories

Lockheed Martin (LMT) is the cleanest backlog story in the group. The company ended 2025 with a record $194 billion backlog representing more than 2.5 years of sales. Management reaffirmed FY2026 guidance of $77.5 to $80.0 billion in sales and diluted EPS of $29.35 to $30.25, with operating profit expected to grow approximately 25% year-over-year. The Department of Defense signed multi-year framework agreements to scale Patriot and PrSM production, including a plan to more than triple PAC-3 MSE output under a seven-year framework. Lockheed also just secured a $4.7 billion PAC-3 missile production contract.

The stock trades around $546, with a forward P/E around 18. The risk: Q1 2026 saw $125 million of unfavorable profit adjustments on the F-16 program, and fixed-price contract execution remains the perennial caveat in this business.

RTX is the one that actually raised guidance. That distinction matters. Q1 2026 adjusted EPS of $1.78 beat estimates by roughly 17%. RTX raised its FY2026 outlook to adjusted sales of $92.5 to $93.5 billion, with adjusted EPS of $6.70 to $6.90 and free cash flow guided at $8.25 to $8.75 billion. Backlog finished Q1 at $271 billion, split between $162 billion commercial and $109 billion defense.

The structural advantage RTX holds that neither Lockheed nor Northrop replicates: the Collins Aerospace commercial aviation business. Collins provides avionics, seats, and connectivity systems to virtually every major commercial airline and aircraft manufacturer in the world. That gives RTX a revenue stream correlated with air traffic rather than defense budgets alone — a partial hedge that its pure-defense peers simply don’t have. The stock is up 32% over the past year. Q2 earnings are expected around July 23.

Northrop Grumman (NOC) is the most interesting contrarian case. The stock is down 12% year-to-date to around $504. That underperformance looks harsh when you dig into the actual Q1 numbers: EPS of $6.14 beat the $6.06 estimate, revenue grew 4% to $9.9 billion, and net income climbed 82% year-over-year. Aeronautics Systems swung from a $183 million operating loss to $305 million in operating income — largely reflecting the absence of a prior-year B-21 loss provision rather than a clean, like-for-like margin expansion.

The really interesting signal: on May 20, 2026, a number of Northrop directors reported 349-share acquisitions at $552.17, but these were equity awards/deferred share units under Rule 16b-3 (not open-market purchases). Backlog stands at about $95.6 billion. The caveat is real — B-21 program risk still exists, and government shutdown exposure is not baked into guidance.

The Valuation Question

The primes trade at roughly 22 to 25 times forward earnings. That’s a premium to the S&P 500 and well above their own 10-year averages. The market is paying for backlog visibility and dividend reliability. Whether that premium is justified depends on whether execution continues to hold.

The risk worth pricing in: fixed-price development contracts have caused multibillion-dollar losses at defense companies before. Boeing’s charges on KC-46 and T-7 are the cautionary tale every defense analyst has filed away. LMT, NOC, and RTX all carry some fixed-price exposure that could surprise on the downside if scope creeps further.

There’s also rate sensitivity. Premium multiples compress fastest if the Fed holds rates higher for longer. Kevin Warsh has emphasized a more hawkish, less forward-guidance-heavy Fed posture early in his tenure. That’s a macro headwind worth sizing.

Bull / Base / Bear

• Bull: Budget tailwinds persist through 2028. Munitions production ramps accelerate. All three primes beat Q2 earnings in late July. NOC re-rates toward peers as B-21 scales. RTX continues raising guidance.
• Base: Steady execution on existing contracts. Revenue and EPS grow at mid-single-digit rates. Dividends continue growing. Sector holds its premium multiple relative to the S&P 500.
• Bear: Procurement delays and continuing resolutions compress quarterly visibility. Fixed-price contract charges emerge at one or more primes. The Iran situation de-escalates faster than expected, reducing the geopolitical urgency driving incremental order flow.

Action Plan

If you want defense exposure right now, the cleanest framework is this: RTX for structural diversification and the only raised 2026 guidance; LMT for pure backlog visibility; NOC for the most contrarian angle — but treat “insider buying” headlines carefully and read the Form 4 details.

Q2 earnings for all three land in late July. That’s the next real catalyst. Watch whether management signals further guidance raises and whether production ramps on Patriot, AIM-9X, B-21, and THAAD are on schedule.

Cheap Investor Checklist

• Q2 earnings beats vs. misses across LMT, NOC, RTX (late July)
• Free cash flow conversion — especially LMT, which ran negative in Q1
• B-21 production ramp at Northrop: is the operating income inflection sustainable?
• RTX Pratt and Whitney GTF inspection program: is cash drag narrowing?
• Congressional budget execution on the $1.15 trillion NDAA baseline
• NATO allied spending commitments and European order flow
• Fixed-price contract disclosures on any new unfavorable adjustments
• Insider transaction activity at NOC as a sentiment confirmer (and whether it’s awards vs. open-market buying)

The budget tailwind here is as durable as any in the market. The question was never whether defense gets funded — it’s whether the stocks have already priced in the good news. At current multiples, execution matters more than the macro backdrop. The next 30 days will tell us a lot.