L3Harris Technologies Inc (LHX)

Conclusion

L3Harris Technologies is a US defence and aerospace company serving government and commercial customers through three segments: Space & Mission Systems, Communications & Spectrum Dominance, and Missile Solutions. At 271.42 USD on 2026-11-09, its market capitalisation is 50.5 billion USD.

The verdict is undervalued. The P/E of 24.7x sits against a ten-year median of 34.3x, EV/EBITDA of 15.4x against 17.6x, and price to free cash flow of 13.9x against 22.6x. The discounted cash flow gives 493.11 USD per share at a discount rate of 8.87%. The fair value band runs from 324.31 to 486.47 USD with a midpoint of 405.39 USD, a margin of safety of 49.4% at the current price. The reverse DCF implies growth of 1.0% a year, against revenue growth of 3.7% over five years and free cash flow per share growth of 4.9%.

What holds the case up is free cash flow conversion of 178.1% over the trailing twelve months, eight of nine Piotroski points, and eight earnings beats in eight quarters. What would break it is interest coverage of 5.6x, net debt of 2.09x EBITDA, and a return on invested capital of 8.7% sitting close to a weighted average cost of capital of 8.0%.

Financial health

Financial strength is yellow: four measures are assessed as neutral and none as good or bad. The current ratio is 1.20 and the quick ratio is 0.98, so short-term liquidity is adequate but not wide. Net debt is 2.09 times trailing EBITDA, debt to equity is 0.54, and interest coverage is 5.6 times. The Altman Z-score is 2.31, in the grey zone. Insolvency risk: low, about 0.3% by the estimate of the Ohlson model over one to two years, based on the 2025 year-end figures. The leverage is moderate rather than stretched, but interest coverage leaves less room than the free cash flow suggests, so a rise in borrowing costs or a fall in earnings would weigh on this measure first.

Earnings quality

Earnings quality is green, supported by three good assessments. Free cash flow conversion is 178.1% on a trailing basis and 148.3% over five years, so reported profit has been backed by cash. The accrual ratio is -3.6%, which points to cash earnings running ahead of accounting profit. Stock-based compensation is 0.5% of revenue, and free cash flow after it is 3.52 billion USD. The share count has fallen at a compound rate of 2.7% over five years, consistent with buybacks. The Piotroski score is 8 of 9. The Beneish M-score is not available. L3Harris beat estimates in all eight of the last quarters, with an average surprise of 7.5%. Estimates for the current year have risen 2.6% over 90 days, while estimates for next year have risen 1.5% over 90 days but five were cut in the last 30 days.

Profitability

Profitability is yellow, with four neutral assessments and none good. The gross margin is 25.6% against a ten-year median of 29.0%, and the operating margin is 10.5% against 11.6%. The net margin is 8.8%, above its median of 7.2%, which is helped by a low tax rate of 16.9%. Return on invested capital is 8.7%, against a weighted average cost of capital of 8.0%, giving a return above cost of capital of 0.7%. That is a thin margin. The five-year median return on invested capital is 5.9%. Return on equity is 10.1%, but the DuPont split shows leverage is part of it: a net margin of 7.4%, an asset turnover of 0.53x and an equity multiplier of 2.10x, all from the 2025 year-end.

Growth

Growth is green, with three good assessments and one neutral. Revenue has compounded at 8.6% over three years, 3.7% over five years and 18.9% over ten years. Revenue grew in seven of the ten comparable years. Earnings per share have compounded at 15.8% over three years, 10.5% over five and 10.6% over ten. Free cash flow per share compounded at 13.1% over three years, 4.9% over five and 8.0% over ten. The five-year revenue rate is the weakest of these, and the three-year figures are stronger than the five-year ones, so recent acceleration is not yet a long record. The analysts' estimate for next year's earnings growth is 11.1%.

Valuation

Valuation is green, with one good assessment. The P/E is 24.7x against a ten-year median of 34.3x, a premium of -27.8%. EV/EBITDA is 15.4x against 17.6x, a premium of -12.8%. Price to free cash flow is 13.9x against 22.6x, a premium of -38.6%. Price to sales is 2.17x against 2.47x, a premium of -12.4%. Price to book is 2.50x against 2.34x, a premium of 6.6%. The discounted cash flow gives 493.11 USD per share at a discount rate of 8.87%. The fair value from historical multiples is 317.67 USD. The fair value band runs from 324.31 to 486.47 USD with a midpoint of 405.39 USD. These figures rest on fixed assumptions, including a 5% equity risk premium and capped growth, so they show an order of magnitude, not a target. The reverse DCF implies growth of 1.0% a year. The dividend yield is 1.8%, with a forward yield of 1.9%, and the payout on free cash flow is 25.5%.

Risks

The weakest numbers are interest coverage of 5.6x, net debt of 2.09 times EBITDA and a return on invested capital close to the cost of capital. If earnings fell, coverage would narrow, and debt would be harder to reduce. A thin spread over cost of capital means growth that does not earn high returns would add little value. The gross margin of 25.6% against a median of 29.0% suggests pricing or cost pressure in the core business. Five downward estimate revisions for next year in the last 30 days are a warning that analysts' view of near-term growth is weakening. The Beneish M-score and the free cash flow multiples for longer periods are not available. This analysis has no debt maturity schedule and no revenue split by segment, so it cannot show when debt falls due or which segment drives the growth.