# L3Harris (LHX)

Sector: Aerospace & defense

| Field | Value |
|---|---|
| Price | $240.50 |
| Fair value (Analysts) | $340.00 |
| Discount to fair value | 29.3% |
| Fair value uncertainty (Analysts) | Medium |
| Economic moat (Analysts) | Narrow |
| LSEG analyst rating (1 strong buy to 5 strong sell) | 2.15 |
| Data as of | 2026-10-16 |
| Next earnings | 2026-10-29 (confirmed) |

## In short

A sudden CEO change and a costly missile buildout make investors doubt L3Harris's growth plan, and steady guidance and a missile business IPO by the end of 2027 can close the gap.

## Themes and gap

- Themes: New management (management-change)
- Gap type: Can close (closable)
- Why: Quarterly reports under the new CEO, the 2027 guidance and the planned IPO of the missile business by the end of 2027 give dated checks.

## About

L3Harris Technologies makes defense electronics, space systems, communications equipment and missile propulsion. Its main customer is the US Department of War, and it also sells to allied governments and to other defense contractors such as Lockheed Martin. It has three segments. Space & Mission Systems makes satellites, sensors, missionized aircraft and parts for aircraft such as the F-35. Communications & Spectrum Dominance makes tactical radios, electronic warfare and targeting systems, and it has the highest margin. Missile Solutions, the former Aerojet Rocketdyne, makes solid rocket motors and other propulsion for interceptors such as THAAD and PAC-3, and for strike weapons. Most revenue comes from long government contracts, and backlog was a record $42 billion at the end of Q2 2026.

## Thesis

The market doubts that L3Harris can turn its record backlog into higher profits on time while it changes its leader and builds new missile plants. Christopher Kubasik left as CEO on August 17, 2026, after the Board found conduct that was not consistent with the company's values, and Sam Mehta replaced him. L3Harris also plans to spend about $3 billion to increase solid rocket motor production, and it sold preferred stock in its missile subsidiary to the Department of War, which can convert to about 10% of that business at an IPO. L3Harris expected the US government to start fiscal 2027 on a continuing resolution, which can delay new programs. For the gap to close, L3Harris must meet its raised 2026 guidance of $23.2 billion to $23.7 billion of revenue, diluted EPS of $11.80 to $12.00 and about $3.0 billion of free cash flow. The missile ramps for THAAD and PAC-3 must stay on schedule and on cost. The planned IPO of the missile business, AXYV, should occur by December 31, 2027, so that the market sees a public value for it. The Q3 2026 report on October 29, 2026, and the Q4 report with the 2027 guidance in about late January 2027 give the next tests. If the new CEO keeps the guidance and the missile ramp holds, the gap can close over the next four to eight quarters. A long budget delay or cost overruns on the new plants can keep it open.

## Checkpoints

- Oct 29, 2026: Q3 2026 results: guidance under the new CEO. Status: Pending. Watch: Kept or raised 2026 revenue, EPS and free cash flow guidance with book-to-bill above 1 pass; a guidance cut or a large charge on a missile program fails.
- Jan 2027 (estimate): Q4 2026 results and 2027 guidance. Status: Pending. Watch: 2026 free cash flow near $3.0 billion and 2027 guidance with growth in Missile Solutions pass; lower margins or cash flow fail.
- Dec 31, 2027: AXYV IPO deadline. Status: Pending. Watch: An IPO of the missile business by December 31, 2027 passes; no IPO, with redemption of the preferred stock at a premium, fails.

## Balance sheet

- Cash: $1.5B
- Debt: $10.8B
- Net debt: $9.3B
- Interest cover: 4.9×
- Undrawn credit line: $2.5B, to February 2030
- Debt due within 12 months: $1.8B

Debt is L3Harris's fixed-rate debt principal at July 3, 2026, $10,776 million. It does not include $267 million of finance leases and other debt. Due within 12 months are the $550 million of 3.85% notes due December 2026 and the $1,250 million of 5.40% notes due January 2027. There was no commercial paper, and nothing was drawn on the $2.5 billion revolving credit facility, which matures in February 2030. Interest cover is operating income divided by net interest expense for the first half of 2026. The $968 million of redeemable preferred stock in the missile subsidiary, sold to the Department of War in 2026, is mezzanine equity and is not in debt here; its redemption amount was $1,422 million. L3Harris expects about $3.6 billion of operating cash flow and $3.0 billion of free cash flow in 2026. In the first half of 2026, it bought back $525 million of shares and paid $470 million of dividends.

As of 2026-07-03.

Sources:

- https://www.sec.gov/Archives/edgar/data/202058/000020205826000058/hrs-20260703.htm
- https://www.sec.gov/Archives/edgar/data/202058/000020205826000054/exhibit991q2cy26earnings.htm

## Recent events

- 2026-10-13: L3Harris and Divergent signed a teaming agreement to increase production of low-cost munitions. L3Harris also delivered its first VAMPIRE counter-drone systems to the US Army.
- 2026-10-12: L3Harris received a $250 million follow-on contract from Lockheed Martin for GMLRS rocket motors, the largest quantity in the program's history. It will build them in a new solid rocket motor plant in Camden, Arkansas, which it plans to open later in 2026.
- 2026-09-29: L3Harris received an undefinitized contract from Lockheed Martin, valued at more than $6 billion over seven years, to expand propulsion production for the THAAD missile defense system. The award follows a framework agreement with the Department of War to quadruple THAAD propulsion production.
- 2026-08-17: The Board appointed Sam Mehta as President and CEO and Lewis Hay III as Independent Chairman. Christopher Kubasik left as Chairman and CEO after the Board found conduct that was not consistent with the company's Code of Conduct. The company said that the conduct was not related to financial reporting or operations, and it reaffirmed its 2026 guidance.
- 2026-07-29: L3Harris reported Q2 2026 results. Revenue rose 8% to $5.9 billion, diluted EPS rose 28% to $3.13, and free cash flow was $771 million. Orders were $7.3 billion, a book-to-bill of 1.2, and backlog reached a record $42 billion. L3Harris raised its 2026 revenue guidance to $23.2 billion to $23.7 billion and its EPS guidance to $11.80 to $12.00.
- 2026-04-17: L3Harris agreed to sell redeemable convertible preferred stock in Aerojet Rocketdyne, its Missile Solutions business, to the Department of War, with warrants, for net proceeds of $973 million. The money pays for more missile production capacity. The preferred stock converts into shares of AXYV, a new subsidiary, at an IPO by December 31, 2027; otherwise it can be redeemed with a 7% yearly dividend.

## Risks

- High: L3Harris depends on US government budgets. L3Harris expected the government to start fiscal 2027 on a continuing resolution on October 1, 2026, and this can delay new contracts and production increases.
- Medium: The CEO changed suddenly on August 17, 2026, and two segment heads changed at the same time. A new leadership team can change priorities or miss targets.
- Medium: The about $3 billion buildout of solid rocket motor capacity must deliver on time and on cost. Fixed-price production contracts and undefinitized awards, such as the THAAD contract, can lower margins if costs rise.
- Medium: The Department of War's preferred stock in the missile business converts at a 20% discount to the IPO price, and its holder can own about 10% of AXYV. If no IPO occurs by December 31, 2027, the redemption price can include a 110% premium to the liquidation preference.
- Low: New defense technology companies compete for drone, munitions and space contracts, which can limit the share of new programs that L3Harris wins.

## Links

- Page: https://picks.kamadorueda.com/company/LHX/
- History of changes: https://picks.kamadorueda.com/company/LHX/history/
- JSON with full history: https://picks.kamadorueda.com/data/company/LHX.json

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