Lockheed Martin Corporation (NYSE:LMT) traded at around $509 on October 6, little changed on the day and 26.46% below its 52-week high of $692.
General Dynamics Corporation (NYSE:GD) traded near $332 over the same session, down 3.41% across the year. The two earn almost exactly the same margin on defense contracts, and almost nothing else about them matches.
Identical Profitability, Opposite Balance Sheets:
Start with the figure that makes the comparison worth running. Net margin is 8.16% at Lockheed Martin and 8.18% at General Dynamics. Two companies selling to the same customer under the same contracting rules have arrived at the same answer, which is what cost-based contracting tends to produce.
Then the balance sheets diverge completely. Book value is $38.12 a share at Lockheed Martin against $99.30 at General Dynamics. Debt-to-equity follows, at 234.24% against 35.34%.
So one company has spent years buying back its own stock and borrowing to do it, while the other has not. In January we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
Why One Return on Equity Is Five Times the Other:
Lockheed Martin reports return on equity of 89.17%. General Dynamics reports 17.80%. Nothing in the operations explains a gap that size, because the margins are the same to within two basis points. The explanation is arithmetic. Buybacks and debt have shrunk the equity base at Lockheed Martin, so the same profit is divided by a much smaller number.
Return on assets strips the effect out, and there the figures land at 8.64% against 6.08%. That is the honest version of the comparison, and it still favors Lockheed Martin by a reasonable margin rather than a spectacular one.
Growth points the same way. Quarterly revenue grew 10.50% at Lockheed Martin against 8.10% at GD. In May, we ranked this year’s best dividend performers. The one that finished first has since fallen 38%.
The Valuation Case:
Lockheed Martin traded at around $509 on October 6 and is worth $117.44 billion, against $89.69 billion for General Dynamics. Sustainability for both depends on defense budgets, which decide how much there is to bid for. On price, Lockheed Martin is the cheaper stock, at 18.76 times trailing earnings and 15.54 forward against 20.23 and 17.83.
Enterprise value to EBITDA is closer, at 13.81 against 14.29, because that measure counts the $20.54 billion of debt Lockheed Martin carries. The dividends differ in weight. Lockheed Martin pays a forward rate of $13.80 for a 2.72% yield, against $6.36 and 1.92% at General Dynamics.
Conclusion:
Lockheed Martin is cheaper, growing faster, and yielding more, which on the face of it settles the question. Quarterly revenue grew 10.50% against 8.10% for General Dynamics, and the stock trades at 15.54 times forward earnings against 17.83. However, the 89.17% return on equity that makes it look exceptional is a buyback artifact, and the 234.24% debt-to-equity behind it is the cost of that flattery. General Dynamics holds $99.30 of book value per share. The number to watch is return on assets, because 8.64% against 6.08% is the real size of the gap.
Market Sentiment:
Lockheed Martin Corporation was held by 75 hedge funds with a combined stake value of about $3.69 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 83 hedge fund holders with a cumulative investment value of around $5.05 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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