Wells Fargo upgraded Raytheon Co. Monday but also downgraded Lockheed Martin Corp., presenting a mixed outlook for the U.S. defense industry.

Wells Fargo raised its Raytheon rating to "Outperform" from "Market Perform," while lowering its Lockheed rating to "Market Perform" from "Outperform."

In a research note, the investment bank wrote that the industry faces tighter budgets from their biggest customer, the Pentagon. The federal government, including the Defense Department, is under pressure to reduce spending as the national debt grows rapidly. Defense stocks have underperformed the broader market in recent months as investors fret over possible spending cuts.

Raytheon, however, can use its significant international sales to compensate for any domestic weakness, Wells Fargo wrote. Also, its shares are relatively cheap, and the company's strong balance sheet gives it financial flexibility.

Lockheed, the nation's largest defense contractor, has a higher stock prices and must deal with factors like a large underfunding of its pension plan, according to Wells Fargo.

Share of Waltham, Mass.-based Raytheon rose 18 cents to $44.41 while Bethesda, Md.-based Lockheed's stock fell $1.14, or 1.6 percent, to $70.50.