Global geopolitical tensions have eased somewhat after the fragile ceasefire between Iran and Israel. While global markets breathed a sigh of relief, some defense stocks understandably fell.

That said, I believe global geopolitical tensions are now a structural story, with the U.S. continuing to closely watch Russia and China. Given the expectations, I find Lockheed Martin (LMT) stock a good buy. The stock is a play on rising global defense spending, trades at reasonable valuations, and its dividend yield has risen to almost 3% after the drawdown in the stock. Let’s discuss in detail.

Global Defense Spending Is Expected to Rise

Global defense spending is expected to rise significantly over the next decade, with NATO members (with the exception of Spain) committing to invest 5% of their respective GDPs in defense over the next 10 years. While nine NATO members did not meet the 2% target that the alliance set in 2014, there could be a sense of urgency now, given the rising threat from Russia. 

While the collective 5% target might still be missed, we can be reasonably sure that the alliance’s defense spending will be significantly higher in the next 10 years than it was in the preceding. It is still early to say how much of the higher spend will be directed to U.S. companies, but it’s nonetheless an opportunity for players like Lockheed Martin. U.S. allies in the Middle East are also ramping up defense spending.

Elsewhere, India, which is among the major arms importers globally, might also bump up its defense spending following the recent clashes with rival Pakistan. The country’s defense spending as a percentage of GDP has fallen below 2% and it might need to increase spending as it faces threats from both China and Pakistan. Historically, the country has bought the bulk of its defense equipment from Russia (and its predecessor the Soviet Union), but has been pivoting to Western suppliers. While the country does not buy a lot of defense equipment from the U.S. yet, President Donald Trump might push it to do so to address its trade surplus.

Looking stateside, while Lockheed Martin missed out on the U.S. Air Force’s Next Generation Air Dominance (NGAD) program, which was awarded to Boeing (BA), the company is a strong contender for the Golden Dome missile defense program. The company is positioning its portfolio for new-age warfare, and in February, it unveiled a system to counter unmanned aerial systems.

Lockheed Martin Has a Strong Order Book

Lockheed Martin’s book-to-bill ratio was below 1 in Q1, which means it booked fewer orders than it billed during the quarter. However, the company had an order backlog worth $173 billion, which is more than two times its annual revenue.

Lockheed Martin is expected to post mid-single-digit top-line growth in 2025 and 2026. Its earnings per share (EPS) is expected to fall around 4% this year, in part due to higher costs. Notably, 60% of LMT’s contracts are fixed-price contracts, which means that the company cannot pass on higher costs to buyers. Its earnings are, however, expected to rise over 9% in 2026.

Lockheed Martin Trades at Reasonable Valuations

Lockheed Martin stock trades at a forward price-earnings (P/E) of 16.8x, which looks reasonable. While there are headwinds, including from tariffs, and sentiment toward defense stocks has been subdued of late, I believe higher geopolitical tensions are here to stay, which will bolster the earnings of defense companies like Lockheed Martin.

LMT Stock Forecast

Wall Street analysts, however, have a mixed opinion on LMT, and it has 11 “Strong Buy” and 11 “Hold” ratings. One analyst rates the stock as a “Strong Sell,” and its mean target price of $525.50 is 12.5% higher than its current price. 

Lockheed Martin’s Dividend Yield Is Higher Than Defense Peers

Lockheed Martin has a dividend yield of 2.85% which is higher than other defense companies like RTX (RTX), General Dynamics (GD), and Northrop Grumman (NOC). At the same time, its current valuations are below these companies. 

LMT stock might fit into the portfolios of investors who want to play the rising global defense spending story with a high dividend stock. The stock’s risk-return looks reasonably attractive, as while the valuations are not mouthwatering, they are good enough to make an entry into this defense stock.