Lockheed Lands Massive $24 Billion Deal for 296 F-35 Jets

With a valuation nearing $120 billion, annual revenues close to $72 billion, and yearly profits of $4.2 billion, Lockheed Martin ( LMT -0.27%) continues to hold the title as the world's leading pure defense stock. (If you focus solely on market cap, however, some might argue that Palantir ( PLTR 1.04%) is even larger, despite its much lower revenue figures.)

Lockheed is most recognized for its military aircraft, and in 2024, the company supplied 90 helicopters to various clients, 21 C-130J transport planes, 16 F-16 jets, and 110 F-35 Lightning II stealth fighters. Each year, as F-35 production accelerates, Lockheed Martin is increasingly becoming synonymous with the F-35 program.

And that trend may be even more pronounced in the coming year.

Lockheed's $24 billion F-35 contract

Just before the U.S. government shutdown last week, Lockheed secured a major F-35 fighter jet deal. On September 30, the U.S. Air Force revealed plans to pay Lockheed $24.3 billion for 296 F-35s, split into two production batches of 148 jets each.

While these figures are impressive, they aren't the ones that stood out to me.

The Pentagon's contract announcement detailed that each of the two production batches will feature a mix of F-35 models. The F-35A, which is the most affordable version, will account for most of the order—105 units per batch, serving both the U.S. Air Force and international customers. Each batch will also include a few pricier F-35B vertical takeoff and landing jets, along with more than a dozen F-35Cs designed for aircraft carriers.

Even so, the average price per aircraft in this deal comes to just about $82 million.

From $120 million down to $80 million

Why does this matter? Not long ago, the average price for an F-35A—even the "budget" version—was around $100 million, while the F-35B and F-35C models often exceeded $120 million. In less than ten years, despite high inflation, the average cost across all variants has dropped by roughly a quarter.

These are substantial savings. What's particularly notable is that this price reduction aligns with Lockheed Martin's projections from over a decade ago: they anticipated that F-35s would initially average $120 million, but would eventually fall to about $80 million as mass production and efficiency improvements took effect.

That prediction has now become reality.

What does $24.3 billion mean for Lockheed Martin?

Lower F-35 prices are clearly a win for the Pentagon and American taxpayers. But what are the implications for Lockheed Martin? Will the company’s profit margins suffer due to these price reductions?

The simple answer seems to be "yes."

Between 2021 and 2023, Lockheed Martin’s aeronautics segment, which manufactures the F-35, generated just over $27 billion in annual sales, with operating margins of 10.4%. In 2024, revenue climbed to $29 billion as F-35 deliveries increased, but operating margins on those sales slipped to 8.6%, according to S&P Global Market Intelligence.

Now, halfway through 2025, the situation appears even less favorable—with a twist.

Lockheed’s aeronautics division reported $14.7 billion in revenue for the first half of the year, suggesting it could reach $29 billion again by year-end. So, while higher F-35 output is compensating for lower prices, keeping revenue steady, operating profit so far is just $622 million—a slim 4.2% margin.

It’s worth noting that Lockheed attributed much of this year’s weak performance to a significant "$950 million loss on a classified program," which, unfortunately, falls under the same aeronautics division as the F-35. This makes it difficult to blame the F-35’s lower prices for all of the margin decline. However, it’s clear that F-35 profits weren’t strong enough to counteract the classified program’s losses.

Should you buy Lockheed Martin stock?

As someone who covers defense stocks, I’d like to recommend Lockheed as a buy—but the company isn’t making that decision straightforward. With a current price-to-earnings ratio of 28.5 and a projected long-term earnings growth rate of just 12%, Lockheed trades at a PEG ratio above 2.0—double what value investors typically seek.

Even though the F-35 program is thriving and Lockheed Martin has succeeded in reducing the jet’s cost, the real challenge now is the company’s stock price. Unless shares become more affordable, I can’t recommend buying Lockheed Martin at this time.