L3Harris Technologies Inc. (LHX) is on the rise, according to Wolfe Research analyst Myles Walton. In a positive turn for the company, Walton upgraded L3Harris from “Peer Perform” to “Outperform” and set a new price target of $300, representing a potential upside of nearly 24%.
Walton’s optimism is fueled by a confluence of positive factors, including improving sales growth, margin expansion, and strong free cash flow. After lagging behind competitors in recent years, L3Harris is poised for a significant shift in sales growth, potentially catching up with industry leaders like Lockheed Martin Inc. (LMT) and Northrop Grumman Inc. (NOC) by 2025 or 2026. This, Walton believes, marks a turning point for the aerospace and defense company.
The analyst expects L3Harris’ sales to grow by 3% to 5% in 2025 and 5% in 2026, driven by solid performance in its core divisions, particularly Communication Systems, Space and Airborne Systems, and Aerojet Rocketdyne.
Furthermore, Walton highlighted that L3Harris’ margins are already 400 basis points higher than its peers. This strong margin position is expected to continue expanding, reaching over 16% by 2026 due to ongoing cost-cutting initiatives, including a 5% workforce reduction and facility consolidation.
This margin growth, according to Walton, will lead to robust free cash flow per share expansion in the mid-teens range by 2026. As L3Harris continues to improve its performance, the valuation gap with larger defense companies is likely to close. Walton’s $300 price target is based on a 15% valuation discount relative to the multiples of Lockheed Martin and Northrop Grumman, which have price-to-earnings multiples of approximately 21 and 19.5, respectively. L3Harris is currently trading around 17 times forward earnings.
While the outlook for L3Harris is positive, Walton acknowledged that certain risks remain. The company has lagged behind its peers in growth and continues to grapple with uncertainties related to Aerojet Rocketdyne. However, the analyst believes these concerns are gradually easing and L3Harris is well-positioned to address investor concerns through a renewed focus on growth and margin expansion.
As of this writing, L3Harris Technologies shares were down by 0.15% at $241.85.
