US Aerospace & Defense: Aerospace First, Defense Next’s Defense Now; Upgrade LMT to Buy

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US Aerospace & Defense: Aerospace First, Defense Next’s Defense Now; Upgrade LMT to Buy

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01 Jul 2026 06:17:31 ET │ 74 pages

US Aerospace & Defense

Aerospace First, Defense Next’ Is Defense Now; Upgrade LMT to Buy

CITI'S TAKE

John Godyn AC

We're updating EPS estimates, price targets and views as part of our normal +1-212-816-8014

process of previewing EPS season. We have also published a slide-deck john.godyn@citi.com

summarizing our thoughts and will be hosting a webcast on 7/1. In 2Q, our

tactical framework has been ‘Aerospace First, Defense Next’ on the belief Bradley Eyster

that aerospace stocks would lead the group out of its post-conflict +1-212-816-3661

pullback. Today, we see R/R as increasingly asymmetric across defense bradley.eyster@citi.com

stocks as well. To further emphasize the point, we are upgrading LMT to Buy

and issuing a positive Catalyst Watch on KRMN. Jeremy E Jason

+1-212-816-7789

Aerospace: Expecting Big Beats & Moderate Raises. ‘Aerospace First’ doesn’t mean jeremy.jason@citi.com

the rally is over. Valuation for most aftermarket stocks is closer to multi-year lows Max Lesnik

than multi-year highs and the stocks where that isn’t the case have the most

+1-212-816-2382conservative guidance. Positioning is positive yet that’s not a negative because

most of the time it should be. No category of stock in A&D (and possibly industrials max.lesnik@citi.com

at large) has compounded value over decades in the way that commercial

aftermarket stocks have. Intra-Q KPIs for aftermarket have been unusually strong,

a continuation of 1Q26’s surprisingly positive trends. This is likely to result in large

beats for many aftermarket stocks. We expect that these large beats are coupled