L3Harris Technologies (LHX) is taking flight, with BofA Securities analyst Ronald J. Epstein upgrading the stock to ‘Buy’ from ‘Neutral’ and raising the price target to $300 from $240. Epstein’s confidence stems from the company’s successful transformation initiative, dubbed ‘LHX Next,’ which has proven to be a game-changer.
Initially approaching ‘LHX Next’ with cautious optimism, Epstein now views the initiative with a more positive outlook. The streamlined and focused L3Harris is now better equipped to fulfill its commitments and surpass expectations, he says.
The analyst also highlights the robust demand in the missile and munitions industry, a trend that is expected to persist for the next five years. L3Harris is strategically positioned to capitalize on this growth, standing out as one of the few companies with the capability to produce solid rocket motors (SRMs). The company’s recent wins, including contracts for the Next-Gen Interceptor (NGI) and as the primary provider for the 1st and 3rd stage propulsion on the Glide Phase Interceptor (GPI), solidify its position as a leader in this critical sector.
Adding to L3Harris’s arsenal of strengths is its strategic partnership with Palantir Technologies (PLTR). This collaboration, announced last week, combines Palantir’s powerful Artificial Intelligence platform with L3Harris’s sensor and software-defined systems. Epstein believes this partnership reflects a forward-thinking and strategic move by L3Harris, leveraging Palantir’s AI-driven data integration to enhance cost efficiency, gain greater supply chain visibility, and enable quicker, more informed decision-making. This collaboration also supports AI-enabled product development, aligning L3Harris’s focus on core capabilities with Palantir’s software expertise—a combination that Epstein sees as a strong foundation for future growth.
Further reinforcing L3Harris’s trajectory is its impressive cost-saving initiatives. The company has surpassed its $400 million run-rate savings target for 2024 and is now aiming for $600 million by year-end, setting the stage for its ambitious $1 billion savings goal. These cost reductions have led Epstein to raise his estimates, with 2026E free cash flow (FCF) now projected at $2.8 billion, potentially even exceeding this figure.
Investors seeking exposure to L3Harris can consider XAR (XAR) and the iShares U.S. Aerospace & Defense ETF (ITA).
With its strong performance, strategic partnerships, and commitment to cost optimization, L3Harris Technologies is well-positioned for continued success in the years to come.
