Hook & thesis
L3Harris Technologies is a classic defense-and-aerospace compounder: sticky government contracts, mission-critical communications and space systems, and high barriers to entry. Recent corporate actions - spinning and selling lower-margin propulsion assets and consolidating around space, airborne, and communications capabilities - sharpen the company's profitability profile and should attract multiple expansion versus legacy peers.
We view LHX as a tactical buy for traders who want exposure to a resilient cash-generating defense business with visible revenue streams from the Pentagon and allied programs. Our plan is a mid-term swing trade: enter near current levels with a tight stop below the 50-day support and a realistic target that prices in continued Pentagon budget tailwinds and execution on restructuring.
What the company does and why the market should care
L3Harris provides defense and commercial technologies across air, land, sea, space, and cyber domains through four segments: Space and Airborne Systems, Integrated Mission Systems, Communication Systems, and Aerojet Rocketdyne (propulsion and power). The business is heavily skewed to government customers where long, multi-year contracts and program continuity create predictable revenue. Key secular drivers that benefit LHX include rising defense budgets with allocated funding for AI-enabled sensing and electronic warfare, faster deployment of remote sensing satellites, and upgrades in battlefield communications.
Numbers that matter
- Market cap: roughly $64.8 billion.
- Price / Earnings: ~40.3x on EPS of $8.60.
- Free cash flow: $2.682 billion — a clear source of internal funding and shareholder returns.
- Debt / Equity: 0.53, signaling a manageable leverage profile given the cash flow generation.
- EV / EBITDA: ~21.7x — expensive on an absolute basis, but consistent with defense primes that trade at a premium for program visibility.
- Dividend yield: ~1.39% with an upcoming ex-dividend date of 03/06/2026 and payable date of 03/20/2026.
The stock trades near $346.67 with the 50-day average around $327 and the 20-day near $348. Momentum indicators show the stock is not overheated - RSI sits in the mid-50s and the MACD currently reflects near-term bearish momentum. Volume profiles and recent short-volume prints show active positioning; days-to-cover recently fell near ~1.6 days, which reduces the chance of a disorderly squeeze but keeps attention on headline-driven moves.
Valuation framing
On headline multiples, LHX looks premium: P/E north of 40 and EV/EBITDA ~21.7x. But two points matter for interpreting those numbers. First, the company is undergoing strategic reshaping - spinning off/moving Rocketdyne and missile solutions into separate entities and monetizing certain propulsion assets. That reduces capital-intense, lower-margin segments and should lift consolidated margin profiles going forward. Second, defense primes often justify higher multiples because of contract durability and recurring cash flows; the company's free cash flow of $2.682 billion and a sub-1.0 debt-to-equity ratio support that premium.
So the question for a trader is timing: are catalysts and program wins priced in? Given the stock floats near $346 with a 52-week high at $369.59 and a low at $193.09, there's room for mid-term appreciation if the market re-rates the company on higher structural profitability following divestitures and continued DoD spending.
Trade plan (actionable)
Entry: $346.67 (current market area).
Stop loss: $327.00.
Target: $380.00.
Horizon: mid term (45 trading days) — roughly two months of trade exposure to capture near-term catalyst realization and re-rating.
Rationale: entry is set at the current level to get on before near-term catalysts (including investor events and pipeline contract announcements) flow through. The stop sits below the 50-day EMA (~$327) to respect a meaningful technical support and a framing where the thesis (re-rating on improved margins) would be in question if LHX breaks lower. The target at $380 is a balanced upside that assumes modest multiple expansion alongside steady revenue growth — it represents a reclaim of the recent high and a premium that anticipates positive spin-off clarity and Pentagon spending tailwinds.
Catalysts that could drive the trade
- Execution and clarity on the Rocketdyne and missile solutions transactions - management commentary and deal milestones can materially change forward margins and investor multiples (headline story on 01/25/2026 highlighted these moves).
- Pentagon budget momentum - the recent $900.6 billion authorization and follow-on program awards favor L3Harris' electronic warfare, sensing and communications franchises (news flow 01/27/2026 already tied program awards to peers).
- Satellite and remote-sensing demand - market forecasts show rapid growth in remote sensing and space hardware, areas where LHX has prime systems exposure.
- Large program deliveries and contract wins - visible wins such as advanced surveillance aircraft deliveries signal execution and can drive near-term re-rating.
Risks and counterarguments
- Program and execution risk: Defense work is complex; slippage or cost overruns on big programs can reduce margins and delay free cash flow realization.
- Valuation vulnerability: The stock is priced for improvement. If the market doubts margin expansion after asset sales, multiple contraction could offset revenue growth.
- Dependence on government budgets: While the Pentagon budget is currently supportive, sequestration or shifting political priorities could pressure new awards in certain pockets.
- Spin-off and transaction uncertainty: Selling Rocketdyne and other moves introduce transitional execution risk and potential one-time accounting/earnings impacts that can confuse near-term results.
- Macro and rates: Higher rates or a broad risk-off episode would likely hit high-multiple names hard; LHX's premium P/E makes it sensitive to multiple compression.
Counterargument: The conservative view is that LHX's current valuation already bakes in post-divestiture margin gains and that peers with purer government exposure (or larger scale) may deserve equal or higher multiples. If the company cannot demonstrate tangible margin improvement within upcoming quarters, investors may rotate to lower-multiple names even if revenue remains stable.
What would change our mind
We would reconsider the long stance if one of the following occurs: a) definitive signs of sustained margin erosion — a sequential drop in adjusted operating margin despite divestitures, b) material program delays or cancellations, c) leverage increases materially above current levels, or d) management guidance that materially misses free cash flow expectations. Conversely, consistent beat-and-raise quarters, clear margin expansion post-transactions, or sizable non-dilutive contract wins would strengthen the bullish case and prompt us to raise targets.
Position sizing and practical notes
This is a medium-risk swing trade. Use position sizing that limits downside to a small percentage of portfolio value if the stop is hit. Watch headline news closely — any transaction updates or DoD award announcements can produce outsized intraday moves. Given the active short-volume in recent sessions, be mindful of volatility around news.
Bottom line
L3Harris offers a pragmatic way to play defense spending momentum with a tilted improvement in corporate shape after asset rationalization. The combination of $2.68B free cash flow, manageable leverage, and structural demand for secure communications and space systems gives a reasonable foundation for a mid-term long. The trade is actionable with the entry at $346.67, stop at $327.00, and target at $380.00 over 45 trading days. Manage risk tightly and watch execution on the spin-offs and program awards — those will decide whether the valuation premium holds.