Major U.S. defense companies are scheduled to report their third-quarter earnings this month. RBC Capital analysts, led by Kenneth Herbert, noted that stocks of U.S. defense primes (or prime contractors) have risen by an average of 30% year-to-date, with most of the increase coming in spring, after the details of the “One Big, Beautiful Bill” and about $158 billion in defense spending were priced into the stocks. Herbert highlighted that the second-half growth outlook for defense stocks has accelerated. He noted that fundamentals remain positive, with defense outlays running up 3% through August for Q3 2025. Herbert raised his price targets for five U.S. defense stocks, reflecting his optimism ahead of Q3 earnings.
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The analyst also noted that some high-profile contract awards (F-35, CH-53K, PAC-3, Coyote, and RTX (RTX) DLA award) reflect the accelerated defense activity levels. Additionally, RBC expects U.S. defense companies to benefit from the Golden Dome program.
RBC Capital Analyst Weighs in on RTX and GD Stocks
Herbert believes that among the major defense stocks, RTX has a very favorable second-half setup, while General Dynamics (GD) faces the “lowest bar for Q3.” Last week, Herbert reiterated a Buy rating on RTX stock and raised the price target to $200 from $170. Wall Street expects RTX to deliver Q3 EPS of $1.41, indicating a 2.8% year-over-year decline.
Meanwhile, the 5-star analyst also raised his price target for GD stock to $360 from $330, while maintaining a Hold rating. Herbert is sidelined on General Dynamics stock due to execution risks associated with Gulfstream and incremental risk in the company’s defense portfolio. Wall Street expects General Dynamics’ Q3 EPS to rise 10.1% year-over-year to $3.69.
RBC’s Views on LHX, NOC, and LMT Stocks
Coming to L3Harris Technologies (LHX), Herbert retained a Hold rating on the stock but boosted the price target to $315 from $280, as he expects the company to deliver better-than-anticipated Q3 results. The analyst noted that L3Harris is better positioned across its space, propulsion, and communications businesses. Notably, LHX’s space-based interceptor (SBI) has made greater development strides than its rivals’ programs.
Herbert added that LHX is more aggressively pursuing Golden Dome contract opportunities than Northrop Grumman (NOC) and Lockheed Martin (LMT). Meanwhile, the Street’s consensus Q3 EPS estimate of $2.59 for LHX reflects a 22.5% year-over-year decline.
Meanwhile, Herbert reiterated a Buy rating on Northrop Grumman stock and increased the price target to $675 from $650. The top-rated analyst believes that NOC could benefit from increased spending in aeronautics, specifically in the reconciliation funding for the B-21 Raider. Herbert believes that NOC’s Integrated Battle Command System (IBCS) is well-positioned, and “contract activity will benefit the broader sector as the Trump administration is focused on demonstrating some success prior to the 2026 midterm elections.” Wall Street expects NOC to report Q3 EPS of $6.43, reflecting an 8% decline compared to the prior-year quarter.
Finally, Herbert reiterated a Hold rating on Lockheed Martin stock but raised his price target to $525 from $440. The analyst highlighted that LMT finalized a $24 billion deal for 296 jets in Lots 18 and 19 at the end of the third quarter. Based on this contract, Herbert expects Lockheed’s free cash flow (FCF) outlook of $6.7 billion to be supported at the midpoint, implying about $5.9 billion in FCF in the second half of 2025. Wall Street expects Lockheed’s Q3 EPS to decline to $6.39 from $6.84 in the prior-year quarter.
Wall Street’s Ratings for U.S. Defense Stocks
As reflected by TipRanks’ Stock Comparison Tool, Wall Street has a Strong Buy consensus rating on only L3Harris stock. Analysts are cautiously optimistic on RTX, GD, NOC, and LMT stocks. With the exception of LMT, the other four defense stocks discussed here have outperformed the broader market on a year-to-date basis.
