Morgan Stanley has selected Northrop Grumman (NYSE:NOC) and RTX Corporation (NYSE:RTX) as its new Top Picks in the defense and aerospace sectors, respectively, highlighting improved program economics and attractive valuations.
The firm upgraded Northrop Grumman to “Top Pick in Defense” and raised its price target from $570 to $625. Analysts pointed to strong second-quarter results and promising prospects for Northrop’s B-21 Raider bomber program.
“The potential for improved B-21 economics as the Air Force looks to accelerate aircraft production is significant, in our view,” Morgan Stanley stated.
The bank noted that Northrop’s flagship programs appear well-funded, with the B-21 receiving approximately $4.5 billion in reconciliation funding, and the E-2D aircraft program securing an additional $1.5 billion.
“We see acceleration in Northrop’s revenue growth with improving margins,” the analysts said, calling the company’s portfolio “Best in Breed.”
In a separate note, Morgan Stanley named RTX as its “Top Pick in Aerospace.” Despite lowering its 2025 earnings outlook due to tariffs, RTX trades at a steep discount compared to peers like GE Aerospace—about 33% cheaper on a next-twelve-month price-to-free-cash-flow basis and 40% cheaper on EV/EBITDA.
“We see current valuation levels as compelling,” the analysts wrote. “The market is disproportionately penalizing RTX, creating a relative value opportunity and an attractive entry point.”
RTX beat second-quarter expectations, with both revenue and segment profit exceeding estimates. Morgan Stanley raised its price target on RTX shares to $180 from $165 and maintained an Overweight rating, citing strong demand across RTX’s end markets and progress in managing its GTF engine fleet.
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