Last Update 05 Nov 25
Fair value Increased 3.40%LHX: Shares Will Benefit From Production Surge And Major Contract Wins Ahead
Analysts have raised their price target for L3Harris Technologies by $30 to $350 per share, citing improved profit margin expectations and the company's strong positioning for future contract awards.
Analyst Commentary
Following L3Harris Technologies’ latest quarterly results, analysts have provided updated perspectives on the company’s outlook and valuation.
Bullish Takeaways- Bullish analysts have increased their price targets, reflecting greater confidence in the company’s ability to capitalize on upcoming contract awards and sector demand.
- Expectations for improved profit margins have contributed to the upward adjustments in valuation, which signals strengthening operational execution.
- L3Harris Technologies is viewed as being well positioned within the Aerospace and Defense landscape, as this sector continues to experience robust aftermarket demand and steady passenger travel trends.
- The recurring upgrades indicate optimism regarding the company’s growth trajectory and its ability to outperform consensus expectations in future quarters.
- Some analysts note that the defense market remains nuanced, with potential headwinds such as the impact of government shutdown risks on the company’s future outlook.
- Questions remain about how broader macroeconomic factors could affect contract timing and award flow in the coming fiscal year.
- The upcoming earnings report, paired with consensus EPS estimates, introduces an element of uncertainty regarding the company’s ability to maintain recent momentum.
- Execution risks tied to supply chain challenges and changing federal spending patterns continue to warrant close monitoring by investors.
What's in the News
- Former L3Harris executive Peter Williams pleaded guilty to selling eight zero-day exploits, which were intended for exclusive U.S. Government use, to a Russian broker over a three-year period (Cyberscoop).
- The Pentagon is urging missile suppliers, including L3Harris Technologies, to significantly boost production rates in response to potential future conflicts and increasing demand for critical weapons (Wall Street Journal).
- L3Harris Technologies is among the notable companies scheduled to report earnings before tomorrow's market open. The consensus EPS estimate is $2.57 (Periodicals).
- Defense Secretary Pete Hegseth has ordered an urgent meeting of top U.S. military commanders at a Marine Corps base, with L3Harris named as a key publicly traded contractor (Washington Post).
Valuation Changes
- Fair Value: Increased from $323.28 to $334.28, reflecting a modest upward adjustment in the company’s intrinsic valuation.
- Discount Rate: Decreased from 8.19% to 7.83%. This indicates a slight reduction in perceived risk or cost of capital for the business.
- Revenue Growth: Marginally improved from 5.23% to 5.41%, suggesting slightly stronger long-term sales expectations.
- Net Profit Margin: Rose from 10.79% to 11.01%. This points to anticipated efficiency gains and improved profitability.
- Future P/E: Shifted down from 27.27x to 26.75x. This suggests that investors expect slightly better earnings relative to the current share price.
Key Takeaways
- Increased U.S. defense budget and international demand could bolster L3Harris's revenue growth through enhanced funding and strong market positioning.
- LHX NeXt and strategic partnerships in AI and communications likely to improve efficiency and expand market reach, driving margin and earnings growth.
- Reliance on external contractors and fixed-price contracts pose risks, while geopolitical tensions and budget constraints threaten revenue and growth for L3Harris.
Catalysts
About L3Harris Technologies- Provides mission-critical solutions for government and commercial customers worldwide.
- The U.S. defense budget is expected to grow, with new defense initiatives and a potential increase in funding that could benefit L3Harris, supporting revenue growth.
- L3Harris is well-positioned in several key growth areas, such as missile warning and tracking, due to recent investments and capability alignment, likely increasing future revenue.
- International demand, especially from NATO allies for advanced communication solutions, is expected to continue strong, supporting revenue growth.
- The company's LHX NeXt initiative focuses on cost optimization and efficiency, leading to potential net margin improvements.
- Strategic collaborations and partnerships, particularly in AI and resilient communications, are expected to expand L3Harris's market reach and potentially drive future earnings growth.
L3Harris Technologies Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming L3Harris Technologies's revenue will grow by 5.2% annually over the next 3 years.
- Analysts assume that profit margins will increase from 7.9% today to 10.8% in 3 years time.
- Analysts expect earnings to reach $2.7 billion (and earnings per share of $15.25) by about September 2028, up from $1.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $2.0 billion.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.4x on those 2028 earnings, down from 29.8x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.4x.
- Analysts expect the number of shares outstanding to decline by 1.36% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 8.15%, as per the Simply Wall St company report.
L3Harris Technologies Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- The need for L3Harris to depend on the performance of other contractors, especially on MDAPs where they are a subcontractor, creates significant dependency risks that could impact their timing and efficiency in project completion, potentially affecting revenues.
- Concerns about political and economic tensions between the U.S. and European allies may pose a risk to L3Harris’s international revenues, particularly in communications and defense technology.
- The transition of the F-35 TR-3 mission computing hardware from development to production highlights potential volume concerns that could risk affecting segment revenues and margins.
- L3Harris is engaged in fixed-price development contracts, which carry higher risk of technological and financial challenges, potentially impacting profit margins and earnings.
- Budget constraints within the U.S. government, particularly in the space sector, may affect future revenues and could delay expected growth, impacting overall financial targets.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $299.737 for L3Harris Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $327.0, and the most bearish reporting a price target of just $250.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $24.9 billion, earnings will come to $2.7 billion, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 8.1%.
- Given the current share price of $270.71, the analyst price target of $299.74 is 9.7% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Read more narratives
There are no other narratives for this company.
View all narratives