Barricades of Steel: Why Defense Contractors Are Firing on All Cylinders Despite Trump's Tariffs

The U.S. defense sector is proving to be a fortress in turbulent times. While tariffs, trade wars, and global economic uncertainty have rattled markets, major defense contractors are defying the odds—maintaining their financial forecasts in early 2025. But not all ships are sailing smoothly. Let’s unpack who’s winning, who’s struggling, and what investors should aim their crosshairs at.

The Winners: Lockheed Martin – A War Machine in Full Motion

Lockheed Martin (LMT) is the poster child of resilience. In Q1 2025, it reported earnings per share (EPS) of $7.28, a 14% jump over last year, crushing analyst estimates of $6.35. Revenue hit $18 billion, up 4% year-over-year, driven by soaring demand for its missile systems (JASSM, THAAD) and F-35 fighter jets. The Pentagon’s “21st Century Security” push is fueling contracts like the Trident II D5 life-extension program and Singapore’s expanded F-35 order.

Shares rose 2% post-earnings, and the company reaffirmed its $6.7 billion free cash flow target for 2025. CEO Jim Taiclet isn’t just defending legacy systems—he’s integrating AI and autonomy to make older jets like the F-22 “80% as capable as 6th-gen fighters at 50% the cost.” This is a company firing on all cylinders.

The Cautionary Tale: Northrop Grumman – Bombs Bursting In Air… and Budgets

Northrop Grumman (NOC) is a reminder that even in defense, execution matters. Its Q1 profit plunged 49%, sending shares down 12%, thanks to soaring costs on the B-21 Raider stealth bomber program. While the B-21 is a long-term growth engine, current inefficiencies are weighing on margins. CEO Kathy Warden insists supply chains are under control, but investors are right to squint at $10 billion in B-21 development costs and the Pentagon’s scrutiny over cost overruns.

The verdict? Stick with Northrop for its $173 billion backlog and geopolitical relevance, but brace for volatility until the B-21 hits its stride.

The Struggling Giant: RTX – Trapped in a Commercial Crossfire

Raytheon Technologies (RTX) is the sector’s weak link. Its Q1 results showed a $850 million profit hit from tariffs on metals and Chinese imports, crippling its commercial divisions like Collins Aerospace and Pratt & Whitney. While Collins’ revenue rose 8% to $7.22 billion on Airbus demand, RTX’s defense unit slumped 5% due to prior divestitures. This bifurcation is a red flag: 60% of RTX’s revenue comes from commercial aerospace, making it far more exposed to global trade wars than pure-play defense peers.

Shares have dropped 12% year-to-date, and unless RTX can renegotiate contracts or secure tariff exemptions, this stock is a landmine.

The Geopolitical and Economic Crosswinds

The defense sector’s resilience isn’t just about company performance—it’s tied to global instability and U.S. military spending. Conflicts in Ukraine and the Middle East are supercharging demand for missiles, drones, and fighter jets. Even the IMF’s grim 1.8% U.S. growth forecast for 2025 can’t dim the Pentagon’s budget, which Defense Secretary Pete Hegseth hinted could grow further.

But the EU’s plan to slash reliance on U.S. equipment by 2030 is a looming threat. Meanwhile, tariffs aren’t going away: China faces 125% tariffs, while metals like aluminum carry 25% duties. This creates a “two-speed” industry: defense contractors thrive, but hybrid firms like RTX struggle.

The Bottom Line: Fire When Ready

This isn’t a sector to “set it and forget it.” Here’s the Cramer-style roadmap:

1. Buy Lockheed Martin (LMT): It’s the best of breed, with $10 billion in missile awards in Q1 alone and a $173 billion backlog. The stock is up 2% post-earnings, but with free cash flow targets intact, this is a buy-the-dip candidate.

2. Avoid RTX (RTX): Its commercial divisions are stuck in a trade war, and its defense unit lacks the scale to offset losses. A 40% drop in 2024 isn’t a typo—this is a sell.

3. Monitor Northrop (NOC): The B-21 is a “moonshot” program. If costs stabilize, it’s a buy. If not? Get ready for more volatility.

Final Shot: The Defense Sector’s Silver Bullet

The numbers speak louder than missiles. Lockheed’s 14% EPS growth, Northrop’s $173 billion backlog, and the Pentagon’s $800 billion+ budget are armor against economic headwinds. Even with the IMF’s recession risks, defense contractors are the last bastion of predictability in this market.

Investors who load up on pure-play defense stocks like LMT while avoiding tariff-trapped hybrids like RTX will find themselves in a fortified position—no matter where the trade war’s bullets fly.

Action Alert: Buy LMT dips below $350. Sell RTX if it breaches $100. Northrop? Wait for B-21 clarity. This is a sector where the smart money aims first and asks questions later.