The thesis
The Pentagon asked for $1.5 trillion for fiscal 2027, and the big contractors report record backlogs. Yet most of their stocks sit in the bottom quarter of their own five-year valuation range. Investors paid up instead for newer names in space, software and autonomy, and that split is what this page tracks.
By Jake, founder of StockResearch.app · Oct 5, 2026 · Opinion, not investment advice
Where the money stands
The fiscal 2027 request totals $1.5 trillion: $1.15 trillion through regular appropriations and $350 billion through a party-line reconciliation bill (GovCon Wire). The reconciliation half carries most of the new programs, including $17.1 billion of the $17.9 billion Golden Dome missile defense request and $47 billion for munitions (CSIS).
That half has not passed. Congress’s budget resolutions make room for $60 billion of it, and Senate Republicans left for the midterm recess without a vote (Washington Sun). The fiscal year opened on a stopgap that holds spending at 2026 levels through December 11 (Breaking Defense). A separate $87.6 billion supplemental request for Iran war costs includes $21 billion for munitions.
What is already under contract
Some of the demand is signed. Lockheed agreed seven-year deals to triple PAC-3 interceptor output and quadruple THAAD, and ended June with a record $230 billion backlog (GovCon Wire). Raytheon signed five framework agreements to raise Tomahawk, AMRAAM and Standard Missile production two to four times (RTX). For Golden Dome, the Space Force gave 12 companies up to $3.2 billion to develop space-based interceptors, among them Lockheed, Northrop, Raytheon, General Dynamics and Booz Allen alongside SpaceX and Anduril (Breaking Defense).
Drone buying is changing shape. The Drone Dominance program ordered 20,000 small attack drones from 10 vendors, most of them private (Breaking Defense). Europe raised military spending 14% in 2025 (CNBC), but the EU’s €150 billion SAFE loans require 65% European content, which limits what US contractors can sell with that money (Defence Industry Europe).
What the market priced
When we wrote this (October 5, 2026), Lockheed, Northrop, General Dynamics and Textron sat between the 1st and 22nd percentile of their own five-year EV/Sales ranges, with record backlogs. Raytheon was the exception, near the 78th. Parts makers TransDigm and HEICO sat near the bottom too, as did Leidos, Booz Allen and Parsons among the services firms; those five also appear in the AI Cyber Defense theme.
The premium went to the newer names. Rocket Lab, Planet Labs, Palantir, Kratos and Mercury Systems sat between the 71st and 90th percentile, and Palantir traded at 77 times sales against Lockheed’s 1.7. AeroVironment broke the pattern: buying BlueHalo nearly doubled its revenue, and its multiple sat near a five-year low. A low rank describes the present; it does not forecast a rebound.
The Iran war did not change the picture. The NYSE Arca Defense index fell nearly 8% in March, the month after the strikes began, and one strategist said “a lot of conflict premium was in their valuations” (Defense News).
Why the big contractors trade low
Three things weigh on the primes. A January executive order bars contractors the Pentagon judges to be underperforming from buybacks and dividends (Morgan Lewis), and the Senate’s defense bill would go further (Holland & Knight). Fixed-price programs keep producing losses: Northrop has booked more than $2 billion on early B-21 bombers (Air & Space Forces Magazine). And new entrants win large awards: the Army gave Anduril an enterprise contract worth up to $20 billion (Nextgov), and investors valued the private company at $61 billion in May (CNBC).
The risk in the expensive names is simpler. Rocket Lab, Planet and Palantir are priced for years of fast growth, and much of the new money they compete for sits in a reconciliation bill that has not passed.
What would change the view
- Congress passing the reconciliation money, or letting it lapse after the midterms.
- Buyback and dividend limits written into the final defense bill or new contracts.
- New fixed-price losses at the primes, on the B-21 or elsewhere.
- Large production awards going to private entrants instead of listed companies.
- European buyers choosing SAFE-funded European systems over US ones.