The past few years of geopolitical tensions and military flashpoints have put America’s munitions stockpile under strain.

Even before the war in Iran, the U.S. had been working through its defense stockpile for years. The three-month conflict has only added to that pressure, placing an additional toll on supplies that were already stretched to begin with.

In response, the Trump Administration has prioritized the replenishment of America’s munitions stockpile.

With money flowing into this priority, aerospace and defense giant Lockheed Martin (LMT) is poised to benefit given its critical role in the military supply chain.

Despite being an above-average performer for years, investors are forecasting declining returns for this company.

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Global instability across regions like Ukraine, Asia, and the Middle East has necessitated an elevated defense posture, driving rapid arms and munitions acquisition along with greater military mobilization.

This has led to a rapid rise in spending. America’s defense budget has risen from roughly $705 billion in FY 2021 to $961 billion in FY 2026. For FY 2027, that figure could rise even further to $1.5 trillion if the White House’s defense budget proposal is approved.

This increased spending is a direct response to America’s complex geopolitical and military situation, which was further complicated by the conflict in Iran and the rest of the Middle East.

During the first 96 hours of Operation Epic Fury—which kickstarted the fighting in Iran—it’s estimated that the U.S. and its allies used up over 5,000 munitions, some of which included hundreds of the highly-valuable Tomahawk defense missiles and hundreds of Terminal High Altitude Area Defense (“THAAD”) and Patriot missiles used for aerial defense and missile interception.

Even before the war in Iran, the U.S. defense stockpile had been under strain for years. The three-month conflict has only added to that pressure, placing an additional toll on supplies that were already stretched to begin with.

It’s not yet known just how much munitions were expended throughout the three-month conflict, but it’s clear that the White House is prioritizing production to replenish depleted stockpiles.

President Trump reportedly summoned top military contractors and senior Pentagon officials to a meeting focused on dwindling munitions stockpiles and how to ramp up production to replenish them.

Earlier this year, the Defense Department was reported to have entered into “handshake agreements” with defense firms to scale the production of critical missiles such as Patriot interceptors and Tomahawk cruise missiles.

Replenishment and production of these munitions could take up to a year or more according to Wall Street Journal reports published earlier this year.

This defense munition build-out presents an opportunity for aerospace and defense giant Lockheed Martin (LMT).

Lockheed Martin is one of the U.S.’ top defense contractors, supplying aircraft, missiles, and other military equipment.

The company operates four business units, namely Aeronautics, Missiles & Fire Control, Rotary & Mission Systems, and Space.

Aeronautics specializes in the design and manufacture of military aircraft and related technologies. Missiles & Fire Control designs and manufactures missles, rockets, and manned and unmanned systems for military use.

Meanwhile, Rotary & Mission Systems specializes in the design of computer systems, software, hardware engineering, and other systems related to the development of military hardware and technology. The Space segment researches and designs missile warning systems, navigation solutions, transportation systems, and other related solutions.

Lockheed recently secured various contracts with the U.S. government. These include:

• A seven-year contract worth roughly $35 billion to quadruple manufacturing of its THAAD missile systems.

• An $8.4 billion contract modification with the U.S. army which will heighten the ceiling and extend the ordering period for increased production of Precision Strike Missiles.

• A $4.7 billion contract to increase production of PAC-3 missiles.

With defense a key priority for the U.S., Lockheed is poised to benefit from this years-long defense investment cycle. That said, the market is taking on a slightly pessimistic stance.

Since 2020, Lockheed’s average Uniform return on assets (“ROA”) has stood at 21%. However, the market expects returns to decline to 18% by 2030.

This valuation indicates that the market has doubts about the sustainability of America’s defense spending.

Investors are underestimating this investment tailwind. Defense will remain a key priority for years to come.

Since replenishing America’s stockpile is a years-long endeavor, this should be able to support Lockheed’s above-average returns for years to come.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research