Lockheed Scores Blockbuster $24 Billion Sale of 296 F-35s

Valued at almost $120 billion, with nearly $72 billion in annual revenue yielding $4.2 billion in annual profit, Lockheed Martin (LMT -0.53%) remains the most valuable pure-play defense stock in the world. (Although if you look at market capitalization exclusively, one could argue Palantir (PLTR -5.39%) is even bigger, despite boasting much smaller revenues.)

Best known for its military aircraft, in 2024 Lockheed delivered 90 helicopters to its several customers, 21 C-130J transport aircraft, 16 F-16s, and 110 F-35 Lightning II stealth fighter jets. With every passing year, and F-35 production continuing to ramp, Lockheed Martin is transforming itself into an F-35 company.

And perhaps next year more so than ever.

Lockheed's $24 billion F-35 sale

Last week, Lockheed was able to squeeze in one final big F-35 fighter jet sale before the U.S. government shut down. On Sept. 30, the U.S. Air Force announced it will pay Lockheed $24.3 billion to acquire a total of 296 F-35s, in two production lots sized at 148 jets each.

These are staggering numbers, and yet, they're not the numbers that caught my eye.

In a Pentagon contract announcement describing the sale, it was stated that each of the two production "lots" covered by the contract will include a mix of F-35 variants. F-35A, the cheapest variant of the aircraft, will make up the bulk of the purchases -- 105 aircraft in each lot, for a mix of both U.S. Air Force and foreign buyers. But each lot will also include a handful of more expensive F-35B vertical takeoff and landing aircraft, and more than a dozen aircraft carrier-capable F-35Cs as well.

Yet the total purchase cost of all these planes averages out at barely $82 million each.

From $120 million to $80 million

Why is this significant? Consider that just a few years ago, the average cost of even a relatively "cheap" F-35A was about $100 million, while F-35Bs and F-35Cs were costing $120 million and up. In less than a decade -- a decade of rip-roaring inflation rates -- the average cost across all variants has now come down roughly 25%.

These are some pretty significant cost savings. What's really interesting, though, is that they're actually right in line with predictions Lockheed Martin made more than a decade ago -- that F-35s might cost $120 million on average initially, but would come down in price to about $80 million over time, as economies of scale and efficiencies of production began to kick in.

That time has come.

How much is $24.3 billion worth (for Lockheed Martin)?

Cheaper F-35s seems like obviously good news for the Pentagon, and for U.S. taxpayers. But what does it mean for Lockheed Martin? Are company profit margins going to take a hit from all the price-discounting on the F-35?

The short answer appears to be "yes."

Over the three-year period from 2021 through 2023, Lockheed Martin's aeronautics division, which builds the F-35, averaged a little over $27 billion in annual revenue, and earned 10.4% operating profit margins on those sales. In 2024, revenues rose to $29 billion as F-35 sales surged, but profit margins on those sales slumped to 8.6%, according to data from S&P Global Market Intelligence.

Here at the halfway mark of 2025, the story looks even worse -- albeit with a twist.

With H1 revenue of $14.7 billion, Lockheed's aeronautics division appears likely to score about $29 billion in sales again this year, so increased volumes of F-35s sold are offsetting lower prices on those F-35s, such that revenue is still rising. Operating profits so far, however, are only $622 million -- a meager 4.2% profit margin.

Granted, Lockheed blamed its poor showing so far this year primarily on a big "$950 million loss on a classified program" -- which inconveniently for us, was located within the same aeronautics segment that builds the F-35. That makes it hard to blame cheaper F-35 prices for all of Lockheed's falling profit margins. But at the very least, we can say that F-35 margins weren't robust enough to offset losses on the classified program.

Is Lockheed Martin stock a buy?

As a defense stock writer, I'd really like to be able to close out this column telling you Lockheed stock is a buy -- but Lockheed Martin isn't making it easy. Priced at 28.5 times trailing earnings today but with a long-term estimated earnings growth rate of barely 12%, Lockheed stock sells for a PEG ratio of more than 2.0 -- twice as much as what a value investor ordinarily wants to pay for a stock.

Despite the success of F-35, and despite Lockheed Martin delivering on its promises to make the fighter jet more affordable, it's Lockheed Martin's stock price that's the bigger issue today. Until Lockheed Martin stock gets cheaper, I just cannot call it a buy.