Is Now the Time to Buy Lockheed Martin Amid Defense Sector Rebound?

The defense sector has experienced a dramatic resurgence in 2025, driven by a seismic shift in U.S. defense policy under President Donald Trump. With a proposed $1.5 trillion defense budget for 2027-a 50% increase from 2026-defense stocks have surged, with European arms makers like BAE Systems and U.S. giants such as Lockheed Martin (LMT) leading the charge. This political-catalyzed momentum raises a critical question for investors: Is now the time to buy Lockheed Martin, a cornerstone of the defense industry, as it navigates a landscape of unprecedented government spending and strategic realignment?

Political Catalyst: A New Era of Defense Spending

The catalyst for this sector-wide rebound is rooted in Trump's aggressive fiscal agenda. By proposing a defense budget that prioritizes military infrastructure, equipment modernization, and restrictions on shareholder returns until capital spending on facilities and machinery increases, the administration has signaled a long-term commitment to bolstering U.S. military capabilities. This shift has not only boosted investor sentiment but also redefined the operational priorities of defense contractors. For instance, the 2025 reconciliation law (H.R. 1) allocated $156.2 billion for shipbuilding, missile defense, and supply chain resilience, with specific line items like $29.176 billion for shipbuilding and $24.413 billion for integrated air and missile defense. These allocations underscore a strategic pivot toward modernization and readiness, areas where Lockheed Martin holds a dominant position.

Strategic Valuation: Lockheed's Position in the 2025/2026 Budget

Lockheed Martin's financial performance in 2025 reflects its alignment with these priorities. The company reported record revenue of $74.5 billion, driven by the F-35 Lightning II program and global defense spending trends. Its $179 billion backlog provides visibility for over two years of production, ensuring steady cash flow even amid short-term volatility. Key contracts in 2025/2026 further solidify its strategic position:
- A $13.3 billion modification for Guided Multiple Launch Rocket System (GMLRS) production.
- A $297.5 million AEGIS combat system sustainment contract.
- A $876.7 million Terminal High Altitude Area Defense (THAAD) support deal for the UAE.

These contracts highlight Lockheed's critical role in missile defense, naval systems, and allied modernization-a portfolio perfectly aligned with the Pentagon's focus on nuclear modernization, homeland security, and B-21 bomber production.

Valuation Metrics: PEG Ratios and Earnings Growth

Despite its strong fundamentals, Lockheed's valuation metrics present a nuanced picture. As of early 2026, its PEG ratio ranges from 1.48 to 7.95 across platforms, reflecting divergent methodologies in calculating growth rates. However, the company's 2025 earnings per share (EPS) of $22.25-up from a $1.6 billion pre-tax loss on a classified program in Q2-demonstrates resilience. Analysts note that while the PEG ratio exceeds 1, it remains below the Aerospace - Defense industry average of 1.82, suggesting relative value.

Political Momentum vs. Valuation Concerns

The proposed $1.5 trillion budget for 2027 could further amplify Lockheed's growth trajectory. With its dominance in the F-35 program (40% of revenue) and high-demand missile systems like PAC-3 and HIMARS, the company is poised to benefit from sustained spending on modernization and production. However, investors must weigh the short-term impact of Trump's dividend restrictions, which could limit shareholder returns until capital expenditures increase.

Conclusion: A Calculated Buy?

For investors with a long-term horizon, Lockheed Martin's strategic alignment with defense modernization and its robust contract pipeline make it an attractive candidate. While valuation metrics suggest a premium over earnings growth, the company's backlog, market leadership, and political tailwinds justify a cautious bullish stance. However, those prioritizing immediate returns may need to reassess, given the regulatory headwinds and PEG ratio volatility. In a sector reshaped by geopolitical tensions and policy-driven spending, Lockheed Martin remains a bellwether-offering both risk and reward in equal measure.