Recent events in the Middle East have only reinforced an armaments megatrend, analysts at Citi believe, arguing growth expectations across the sector still look too conservative.
The bank flagged RTX Corp (NYSE:RTX, XETRA:5UR), L3Harris Technologies Inc (NYSE:LHX, XETRA:HRS), Lockheed Martin Corp (NYSE:LMT), Karman Holdings Inc (NYSE:KRMN), and Ducommun Inc (NYSE:DCO) as particularly sensitive to the theme, given their exposure to missile and interceptor systems.
According to a separate note from Jefferies, US strikes on Iran are likely to reinforce, rather than radically accelerate, rising demand for missiles and interceptors.
Nevertheless, Citi argued that the escalating Iran conflict and rising urgency around stockpile replenishment are strengthening multi-year demand signals.
Yet, despite “positive thematics, incremental award activity and now escalating conflict”, consensus forecasts still model a deceleration in growth at key missile segments.
Citi analysts highlight disclosed production targets across programmes such as AMRAAM, SM-3, SM-6, Tomahawk, PAC-3 and THAAD, with several set to rise two to four times from current levels.
Jefferies said the Iran campaign extends the need for systems such as Patriot PAC-3 and THAAD from Lockheed Martin, and Tomahawk and Standard Missile from RTX's Raytheon. But with production rates already set to increase two to four times over the next five to seven years, it does not expect a sudden surge in output or revenues.
If the push to raise output persists, Citi analysts say recent framework agreements could be definitised “with better overall economics than initially thought”.
For investors, Citi's message was that demand is not the constraint, with the main question being how quickly industry can translate geopolitical urgency into sustained production growth – and whether estimates will need to move higher.
Jefferies argues Ukraine has already highlighted stress in missile supply chains during high-intensity conflict. The key constraint now is capacity, not demand. Long-term agreements with the Pentagon require sustained investment to lift output, rather than short-term surge production.
The fiscal 2026 US budget supports that shift, with $40.2 billion allocated to missile defence, up from $13.5 billion in fiscal 2025, and $35.7 billion for missiles and munitions.
Lockheed and Raytheon are seen as the primary beneficiaries, for Jefferies, along with suppliers such as L3Harris and Northrop Grumman Corp (NYSE:NOC, XETRA:NTH).
Shares in RTC were down 2.4% on Tuesday afternoon, with L3Harris and Lockheed Martin down 1.95%, and Northrop falling 0.8%. Over five days, the defence giants are up 6.7%, 10.9%, 4.3% and 4.6% respectively.