---

Fundamental Stock Analysis: L3Harris Technologies, Inc. (LHX)

L3Harris Technologies, Inc. (LHX) is a global aerospace and defense technology company, providing a broad range of mission-critical solutions for government and commercial customers worldwide. Born from the merger of L3 Technologies and Harris Corporation in 2019, L3Harris is a significant player in the defense industry, operating across multiple domains: space, air, land, sea, and cyber.

Fundamental Stock Analysis: L3Harris Technologies, Inc. (LHX)

This analysis examines the company's financial health, performance, valuation, and growth prospects to provide a fundamental assessment of its investment profile.

Business and Industry Overview

L3Harris operates primarily through four business segments:

1. Space & Airborne Systems (SAS): Provides full mission solutions for space, airborne, and cyber domains, including advanced sensors, electronic warfare, and intelligence, surveillance, and reconnaissance (ISR) systems.

2. Integrated Mission Systems (IMS): Focuses on mission capabilities and prime systems integration for air, land, and sea, including platform integration and maritime systems.

3. Communication Systems (CS): Delivers solutions critical to mission success in contested environments, such as tactical communications and night vision equipment.

4. Aerojet Rocketdyne (AR): Provides propulsion, power, and armament products and systems to the U.S. government, including the Department of Defense (DoD) and NASA. (This segment was added through a strategic acquisition).

The company is firmly positioned within the Aerospace & Defense industry, which is generally characterized by long contract cycles, high barriers to entry, and close ties to government budgets. Global geopolitical tensions and the modernization of defense capabilities in the U.S. and allied nations provide a strong underlying demand driver.

---

Financial Health and Performance

A fundamental analysis of LHX reveals a company with a strong foundation but also certain areas warranting close attention, particularly regarding debt and capital efficiency.

Key Financial Metrics (Approximate TTM/Recent Data)

Metric	Value	Interpretation
Market Capitalization	$\approx \$53.2\text{ Billion}$	A large-cap stock.
Revenue (TTM)	$\approx \$21.4\text{ Billion}$	Steady revenue base from defense contracts.
Net Profit Margin	$\approx 7.9\%$	Indicates the percentage of revenue converted to profit.
Gross Margin	$\approx 25.7\%$	Healthy, though improvements are part of management's strategy.
Return on Equity (ROE)	$\approx 8.9\%$	Measures profitability relative to shareholder equity.
Debt-to-Equity Ratio	$\approx 61.3\%$	Moderate-to-high leverage, common after mergers and acquisitions.
Interest Coverage Ratio	$\approx 4.35$	Adequate ability to cover interest expenses with EBIT.
Current Ratio	$\approx 1.04$	Suggests satisfactory short-term liquidity.
Dividend Yield	$\approx 1.7\%$	The company is an established, consistent dividend payer.

Balance Sheet Analysis

L3Harris’s balance sheet reflects the impact of its large-scale merger and subsequent strategic acquisitions, notably Aerojet Rocketdyne.

• Debt Load: The company carries a substantial debt load ($\approx \$11.8-\$12.1\text{ Billion}$) which gives it a moderate to high Debt-to-Equity ratio. While this leverage is managed by sufficient operating income (indicated by the Interest Coverage Ratio), it is a factor that introduces financial risk compared to lower-leveraged peers.

• Liquidity: A Current Ratio slightly above 1.0 indicates that current assets slightly exceed current liabilities, pointing to adequate short-term liquidity for operational needs.

Profitability and Efficiency

The company is focused on margin expansion through its "LHX NeXt" transformation initiative, which targets significant cost savings and efficiency gains.

• Margins: Gross and Net margins are competitive within the defense sector, but the focus on cost savings aims to drive these higher. Management has consistently reported year-over-year segment operating margin expansion, suggesting the efficiency programs are gaining traction.

• Returns: The Return on Equity (ROE) of $\approx 8.9\%$ indicates decent, but not outstanding, efficiency in generating profit from shareholder capital. Improvements in profitability and a reduction in debt would boost this figure.

---

Growth Prospects and Backlog

Growth for L3Harris is heavily tied to global defense spending, and its future looks relatively robust, supported by a strong order book.

Strong Backlog

A critical indicator for a defense contractor is its backlog (the value of confirmed, yet-to-be-completed contracts). L3Harris reported a very strong backlog of over $34 billion, which provides excellent revenue visibility and cushions the company against short-term budget fluctuations. This backlog growth, particularly in areas like space-based sensing and missile defense, aligns with current U.S. and allied national security priorities.

Strategic Alignment and 'Trusted Disruptor' Strategy

L3Harris positions itself as a "Trusted Disruptor," focusing on technology leadership in key growth areas:

• Space Systems: Transitioning from a payload provider to a prime contractor, especially in missile warning/missile tracking and classified missions.

• Electronic Warfare and Autonomy: Strategic investments in advanced technologies for network-centric warfare solutions.

• Aerojet Rocketdyne (AR): The acquisition of AR strengthens its position in propulsion and missile solutions, a rapidly growing segment due to international tensions and the need for missile defense modernization.

Management has reaffirmed its 2026 financial framework, which targets substantial revenue, margin, and free cash flow growth, underpinning confidence in its long-term strategy.

---

Valuation and Shareholder Returns

Valuation Multiples

Valuation ratios help determine if the stock price is justified by its earnings and assets.

Ratio	Value	Sector Median	Interpretation
P/E Ratio (TTM)	$\approx 31.8$	$\approx 26.4$	Slightly higher than the sector median, suggesting the stock may be relatively expensive based on trailing earnings.
P/S Ratio	$\approx 2.51$	$\approx 1.48$	Higher than the sector median, also suggesting a premium valuation.
Intrinsic Value	Mixed views	−	Some models suggest the stock is slightly overvalued, while others indicate a slight undervaluation based on discounted cash flow (DCF) analysis.

The slightly elevated P/E ratio suggests the market is pricing in the company's expected future growth, particularly from the successful integration of Aerojet Rocketdyne and the margin expansion from the LHX NeXt initiative.

Shareholder Value

L3Harris demonstrates a commitment to returning value to shareholders:

• Dividends: The company has a history of consistently increasing its dividend payments for over 23 years, positioning it as a "Dividend Contender" with a reliable current yield.

• Share Buybacks: The company engages in share repurchases, further contributing to shareholder yield and supporting Earnings Per Share (EPS).

---

Risks and Challenges

No investment is without risk. Key risks for L3Harris include:

1. Government Dependency: Heavy reliance on U.S. and allied government contracts makes the company sensitive to shifts in defense budgets, policy changes, and program cancellations.

2. Integration Risk: While the initial L3/Harris merger is mature, integrating the newly acquired Aerojet Rocketdyne and realizing the full cost-savings potential of the LHX NeXt program pose ongoing execution challenges.

3. Competition: Intense competition from other defense primes (like Lockheed Martin, Northrop Grumman, and Raytheon) and smaller, specialized tech firms can pressure pricing and market share.

4. Supply Chain and Program Execution: Delays and cost overruns in complex, fixed-price development programs, especially in the Space and Airborne Systems segment, can negatively impact profitability.

---

Conclusion

L3Harris Technologies (LHX) stands as a core holding within the defense sector, underpinned by its diverse technology portfolio, mission-critical status, and a massive, highly visible backlog.

The fundamental analysis suggests a company in a period of positive transition, moving from integration to operational excellence, aiming for higher margins and sustained organic growth. While its valuation is not cheap compared to historical averages or some peers, the premium may be justified by the expected double-digit EPS growth forecast and the company's strategic alignment with long-term global defense spending priorities.

Investors with a long-term horizon and a focus on defense technology, consistent dividends, and growth-via-consolidation may find LHX attractive, provided they are comfortable with the moderate leverage and the reliance on government spending cycles.