L3Harris Technologies (NYSE:LHX) - Share price, News & Analysis

Q: What is the Fair Price of LHX when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

LHX ($231.75) is trading below our estimate of [[fair value]] ($478.16)

LHX fundamental analysis
Snowflake Score
Valuation	4/6
Future Growth	1/6
Past Performance	4/6
Financial Health	5/6
Dividends	5/6

LHX Stock Overview

L3Harris Technologies, Inc., an aerospace and defense technology company, provides mission-critical solutions for government and commercial customers worldwide.

Rewards

Trading at 51.5% below our estimate of its fair value

Earnings are forecast to grow 9.27% per year

Earnings have grown 22.4% per year over the past 5 years

Pays a reliable dividend of 1.93%

Risk Analysis

No risks detected for LHX from our risk checks.

L3Harris Technologies Competitors

TransDigm Group

NYSE:TDG

US$35.0b

General Dynamics

NYSE:GD

US$61.8b

Northrop Grumman

NYSE:NOC

US$72.7b

Lockheed Martin

NYSE:LMT

US$112.4b

Price History & Performance

Summary of all time highs, changes and price drops for L3Harris Technologies
Historical stock prices
Current Share Price	US$231.75
52 Week High	US$279.71
52 Week Low	US$200.71
Beta	0.68
1 Month Change	-2.70%
3 Month Change	-2.50%
1 Year Change	1.20%
3 Year Change	10.72%
5 Year Change	93.38%
Change since IPO	2,548.57%

Recent News & Updates

Aug 02

Analysts Are Updating Their L3Harris Technologies, Inc. (NYSE:LHX) Estimates After Its Second-Quarter Results

Investors in L3Harris Technologies, Inc. ( NYSE:LHX ) had a good week, as its shares rose 6.5% to close at US$241...

Jul 29

L3Harris: Undervalued Dividends With Defense Tailwinds

In this article, I start by making the case for a dividend investment in defense giant L3Harris, thanks to its ability to consistently hike shareholder distributions. The company is well-diversified and in a good position to deal with ongoing supply chain and inflation headwinds, according to just-released earnings. Orders are picking up, and the company's valuation makes new investments attractive. Introduction L3Harris Technologies (LHX) just reported its earnings. Besides that, this gives us a good look into current operations, it's a source of information regarding a wide range of topics like the defense budget, the war in Ukraine, and the company's struggles with supply-chain-related headwinds. As L3Harris is one of my largest dividend growth investments, we're going beyond the earnings to once again establish the case for L3Harris as a long-term dividend growth stock. I believe the company is significantly undervalued and offers opportunities for a wide range of dividend (growth) investors thanks to its yield, dividend growth potential, and a lot of other factors that will be discussed in this article. So, let's get to it! A Well-Diversified Defense Giant I'm painting with a broad brush here, but I believe that L3Harris is one of the best ways to buy defense exposure thanks to its diversified exposure. For example, while Lockheed Martin (LMT) is highly dependent on the F-35 program, L3Harris does not have any major projects. The company has three business segments: Integrated Mission Systems [...] including multi-mission intelligence, surveillance and reconnaissance ("ISR") and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-optical and infrared ("EO/IR") solutions. Space & Airborne Systems [...] including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare. Communication Systems [...] including tactical communications; broadband communications; integrated vision solutions; and public safety radios; global communications solutions. Moreover, this year, it went from four to three business segments, which means the company also still includes commercial aviation products, commercial pilot training equipment, and mission networks for air traffic management. These were formerly part of its Aviation Systems segment. Adding to that, and this is important if you're new to L3Harris, the reason I'm not backtesting the stock in this article or showing you financial data prior to 2019 is that L3Harris is the result of a 2019 merger between L3 and Harris. Over the past three years, L3Harris has returned 22.4%. This lags the S&P 500 by almost 20 points - despite outperformance since early 2022 - but it beats the SPDR S&P Aerospace & Defense ETF (XAR). The single biggest reason for underperformance is the pandemic. It took LHX more than a year to get back to pre-pandemic levels as the market focused on tech and growth stocks, which meant that everything related to aerospace was left behind. Then, in 2021, supply chain issues became worse, which impacts L3Harris and its peers. LHX Total Return Level data by YCharts If we go back to January of 2021, LHX has returned 26%. This beats the S&P 500 by 16 points for two reasons. First, this period saw the return of "value" stocks. That was prior to the war, which is reason number two. Although most defense companies have erased the gains that were made when Russia invaded Ukraine, LHX is still up from these levels for reasons I will discuss in this article. LHX Total Return Level data by YCharts But first, let's take a look at the dividend. The LHX Dividend L3Harris investors currently receive $1.12 per share per quarter. The next payment is on September 16, for shareholders of record on September 2. $1.12 is $4.48 per year. That's 1.9% of the company's stock price. This yield is in line with the Vanguard Dividend Appreciation ETF (VIG) yield and roughly 40 basis points above the S&P 500 yield. LHX Dividend Yield data by YCharts In other words, the only group of investors that are excluded right off the bet is investors who require a high and steady stream of income from their dividends right now. Dividend growth investors and even investors 10 years ahead of their planned retirement are in a very good place. With a yield below 2%, the focus needs to be on dividend growth. Otherwise, one may as well buy a high-yield stock. In the case of LHX, we don't have a long history of dividend growth (2019 merger), but that's OK as there's plenty of data to use for a strong dividend growth case. First of all, these are the most "recent" dividend hikes: February 2022: 9.8% February 2021: 20.0% February 2020: 13.3% Not bad, right? While it's hard to predict future dividend growth rates, LHX is in a fantastic place to maintain high dividend growth for one major reason: it generates a lot of cash. While free cash flow growth between 2020-2024E is just 2.7%, we're dealing with an implied 2023 free cash flow yield of 6.0%, which is based on the company's $46.3 billion market cap. TIKR.com Note that free cash flow is cash a company can spend without having to fear that it hurts its business - if the balance sheet is healthy. It is net income adjusted for non-cash operating items and capital expenditures. An (implied) 6.0% FCF yield means that the company can return roughly 6% of its market cap to shareholders per year - and more if FCF keeps growing. This means that its 1.9% yield is safe and enjoys a lot of upside potential. The same goes for buybacks. Between 2020 and 2Q22, the company has reduced its shares outstanding from 216 million to 194 million. That's a decline of 10% helping to improve the value per outstanding share. Net debt is expected to remain at roughly $6.0 billion in the years ahead. That's less than 1.5x EBITDA meaning the company can distribute free cash flow to shareholders, directly via dividends and indirectly using buybacks. Now, in order to explain why I believe that free cash flow can grow faster than 2.7% in the years ahead, let us use the just-released quarterly numbers, which included a lot of data and comments. L3Harris' Fantastic Numbers & Comments Support The Bull Case In its 2Q22 quarter, LHX did $4.13 billion in revenues. That's 12.1% below the prior-year level and $100 million less than expected. Non-GAAP EPS came in at $3.23, which is $0.05 higher than expected. That's a decline of 2%. In this case, the revenue decline is nothing to worry about. Defense companies are often dependent on the timing of new contracts. In this case, the company also mentioned supply chain headwinds as organic revenue declined by 6% (adjusted for acquisitions/divestitures). As the bridge below shows, organic EPS would be up if it weren't for divestitures. The same goes for GAAP EPS. The impact of supply chains was $0.10, which was more than offset by share buybacks. L3Harris The company mainly suffered from supply chain problems in its Communication Systems segment. The impact was $60 million and in line with management expectations. The company is in a good position to mitigate certain supply chain risks and it expects disruptions to persist as the supply chain environment remains "fluid". This is incorporated in the company's guidance. L3Harris is working closely together with suppliers, which will help the company to mitigate long-term risk, in my opinion. Moreover, I believe that economic weakness is a good thing for L3Harris. Don't get me wrong, I'm not rooting for a recession, but if it were to happen, it could ease supply chain and inflation problems without hurting L3Harris' sales as the company has close to zero commercial aviation exposure. Supply chain problems are known to cause inflation as it reduces supply. L3Harris was able to mitigate most supply-chain-related inflation problems by focusing on operational improvements. Moreover: In addition, for the full year, and consistent with initial guidance, L3Harris expects impacts to be mitigated by continued productivity improvements. Over the medium term, with a balanced portfolio of fixed-price and cost-reimbursable contracts along with a relatively short duration of approximately one year, on average, for its backlog, the company is positioned to further offset potential impacts. Note that roughly a quarter of total contracts are cost-reimbursable. Now, onto demand. L3Harris receives orders faster than it can turn backlog into revenues. The (fully funded) book-to-bill ratio came in at 1.14, bringing to YTD number to 1.06. Orders include $250 million for F-35-related products, $700 million for satellite systems, and $300 million for tactical radios. That's just three things out of a really long list. L3Harris A strong order flow is expected to continue. The Department of Defense budget for Government Fiscal Year ("GFY") 2022 is 6% higher and there's notable funding support for Ukraine and higher spending plans for GFY2023.

Jul 29

We Think L3Harris Technologies (NYSE:LHX) Can Stay On Top Of Its Debt

Howard Marks put it nicely when he said that, rather than worrying about share price volatility, 'The possibility of...

Shareholder Returns

	LHX	US Aerospace & Defense	US Market
7D	-3.8%	-0.8%	1.1%
1Y	1.2%	4.9%	-13.0%

Return vs Industry: LHX underperformed the US Aerospace & Defense industry which returned 5.5% over the past year.

Return vs Market: LHX exceeded the US Market which returned -12.9% over the past year.

Price Volatility

Is LHX's price volatile compared to industry and market?
LHX volatility
LHX Average Weekly Movement	3.9%
Aerospace & Defense Industry Average Movement	6.9%
Market Average Movement	7.9%
10% most volatile stocks in US Market	17.1%
10% least volatile stocks in US Market	3.2%

Stable Share Price: LHX is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 4% a week.

Volatility Over Time: LHX's weekly volatility (4%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1895	47,000	Chris Kubasik	https://www.l3harris.com

L3Harris Technologies, Inc., an aerospace and defense technology company, provides mission-critical solutions for government and commercial customers worldwide. The company’s Integrated Mission Systems segment provides multi-mission intelligence, surveillance, and reconnaissance (ISR) systems; and communication systems, as well as fleet management support, sensor development, modification, and periodic depot maintenance services for ISR and airborne missions. It also manufactures and integrates mission systems for maritime platforms, such as signals intelligence and multi-intelligence platforms; unmanned surface and undersea autonomous solutions; and power and ship control systems and other electronic and electrical products and systems.

L3Harris Technologies Fundamentals Summary

How do L3Harris Technologies's earnings and revenue compare to its market cap?
LHX fundamental statistics
Market Cap	US$44.35b
Earnings (TTM)	US$1.91b
Revenue (TTM)	US$16.82b

23.2x

P/E Ratio

2.6x

P/S Ratio

Is LHX overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
LHX income statement (TTM)
Revenue	US$16.82b
Cost of Revenue	US$11.74b
Gross Profit	US$5.08b
Other Expenses	US$3.17b
Earnings	US$1.91b

Last Reported Earnings

Jul 01, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	9.99
Gross Margin	30.18%
Net Profit Margin	11.36%
Debt/Equity Ratio	36.7%

How did LHX perform over the long term?

See historical performance and comparison

Dividends

1.9%

Current Dividend Yield

44%

Payout Ratio

Does LHX pay a reliable dividends?

See LHX dividend history and benchmarks

When do you need to buy LHX by to receive an upcoming dividend?
L3Harris Technologies dividend dates
Ex Dividend Date	Sep 01 2022
Dividend Pay Date	Sep 16 2022
Days until Ex dividend	22 days
Days until Dividend pay date	37 days

Does LHX pay a reliable dividends?

See LHX dividend history and benchmarks

We’ve recently updated our valuation analysis.

Valuation

Is LHX undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

4/6

Valuation Score 4/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for LHX?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for LHX. This is calculated by dividing LHX's market cap by their current preferred multiple.
What is LHX's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$44.35b

LHX key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	3.1x
Enterprise Value/EBITDA	14.7x
PEG Ratio	2.5x

Price to Earnings Ratio vs Peers

How does LHX's PE Ratio compare to its peers?

LHX PE Ratio vs Peers

The above table shows the PE ratio for LHX vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	24.3x
TDG TransDigm Group	41.6x	22.4%	US$35.0b
GD General Dynamics	18.7x	8.3%	US$61.8b
NOC Northrop Grumman	12.8x	5.1%	US$72.7b
LMT Lockheed Martin	23.9x	7.4%	US$112.4b
LHX L3Harris Technologies	23.2x	9.3%	US$44.3b

Price-To-Earnings vs Peers: LHX is good value based on its Price-To-Earnings Ratio (23.2x) compared to the peer average (24.3x).

Price to Earnings Ratio vs Industry

How does LHX's PE Ratio compare vs other companies in the US Aerospace & Defense Industry?

Price-To-Earnings vs Industry: LHX is expensive based on its Price-To-Earnings Ratio (23.2x) compared to the US Aerospace & Defense industry average (21.5x)

Price to Earnings Ratio vs Fair Ratio

What is LHX's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

LHX PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	23.2x
Fair PE Ratio	24.1x

Price-To-Earnings vs Fair Ratio: LHX is good value based on its Price-To-Earnings Ratio (23.2x) compared to the estimated Fair Price-To-Earnings Ratio (24.1x).

Share Price vs Fair Value

What is the Fair Price of LHX when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: LHX ($231.75) is trading below our estimate of fair value ($478.16)

Significantly Below Fair Value: LHX is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is less than 20% higher than the current share price.

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Future Growth

How is L3Harris Technologies forecast to perform in the next 1 to 3 years based on estimates from 16 analysts?

Future Growth Score

1/6

Future Growth Score 1/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

9.3%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: LHX's forecast earnings growth (9.3% per year) is above the savings rate (1.9%).

Earnings vs Market: LHX's earnings (9.3% per year) are forecast to grow slower than the US market (12.8% per year).

High Growth Earnings: LHX's earnings are forecast to grow, but not significantly.

Revenue vs Market: LHX's revenue (5.1% per year) is forecast to grow slower than the US market (8% per year).

High Growth Revenue: LHX's revenue (5.1% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: LHX's Return on Equity is forecast to be low in 3 years time (14.8%).

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Past Performance

How has L3Harris Technologies performed over the past 5 years?

Past Performance Score

4/6

Past Performance Score 4/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

22.4%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: LHX has high quality earnings.

Growing Profit Margin: LHX's current net profit margins (11.4%) are higher than last year (8.2%).

Past Earnings Growth Analysis

Earnings Trend: LHX's earnings have grown significantly by 22.4% per year over the past 5 years.

Accelerating Growth: LHX's earnings growth over the past year (27.4%) exceeds its 5-year average (22.4% per year).

Earnings vs Industry: LHX earnings growth over the past year (27.4%) underperformed the Aerospace & Defense industry 27.7%.

Return on Equity

High ROE: LHX's Return on Equity (9.9%) is considered low.

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Financial Health

How is L3Harris Technologies's financial position?

Financial Health Score

5/6

Financial Health Score 5/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: LHX's short term assets ($6.2B) exceed its short term liabilities ($4.9B).

Long Term Liabilities: LHX's short term assets ($6.2B) do not cover its long term liabilities ($10.1B).

Debt to Equity History and Analysis

Debt Level: LHX's net debt to equity ratio (34.5%) is considered satisfactory.

Reducing Debt: LHX's debt to equity ratio has reduced from 137.6% to 36.7% over the past 5 years.

Debt Coverage: LHX's debt is well covered by operating cash flow (29.7%).

Interest Coverage: LHX's interest payments on its debt are well covered by EBIT (9.6x coverage).

Balance Sheet

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Dividend

What is L3Harris Technologies's current dividend yield, its reliability and sustainability?

Dividend Score

5/6

Dividend Score 5/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

1.93%

Current Dividend Yield

Upcoming Dividend Payment

Dividend Yield vs Market

Notable Dividend: LHX's dividend (1.93%) is higher than the bottom 25% of dividend payers in the US market (1.52%).

High Dividend: LHX's dividend (1.93%) is low compared to the top 25% of dividend payers in the US market (4.1%).

Stability and Growth of Payments

Stable Dividend: LHX's dividends per share have been stable in the past 10 years.

Growing Dividend: LHX's dividend payments have increased over the past 10 years.

Earnings Payout to Shareholders

Earnings Coverage: With its reasonably low payout ratio (43.7%), LHX's dividend payments are well covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: With its reasonably low cash payout ratio (48.6%), LHX's dividend payments are well covered by cash flows.

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Management

How experienced are the management team and are they aligned to shareholders interests?

3.2yrs

Average management tenure

CEO

Chris Kubasik (61 yo)

1.17yrs

Tenure

US$15,697,749

Compensation

Mr. Christopher E. Kubasik, also known as Chris, C.P.A., has been the Chief Executive Officer at L3Harris Technologies, Inc. since June 29, 2021. He serves as Chairman of Board at L3Harris Technologies, In...

CEO Compensation Analysis

Compensation vs Market: Chris's total compensation ($USD15.70M) is about average for companies of similar size in the US market ($USD12.96M).

Compensation vs Earnings: Chris's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: LHX's management team is considered experienced (3.2 years average tenure).

Board Members

Experienced Board: LHX's board of directors are considered experienced (3.2 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/08 00:00
End of Day Share Price	2022/08/08 00:00
Earnings	2022/07/01
Annual Earnings	2021/12/31