L3Harris makes satellites, secure communications, sensors and, since buying Aerojet Rocketdyne, the rocket motors inside U.S. missiles. Orders are at a record and missile demand is rising, yet the shares have fallen about a third from their high after a CEO exit and a delayed IPO. On its own cash-flow targets, the stock looks cheap.
The cash-flow model’s bear-to-bull range, the probability-weighted value, the price and its 52-week range. The copper line marks the base case; the fine dotted line is today’s close.
Written on October 20, 2026, before its third-quarter results later this month. Figures are from the company’s filings and releases unless noted. Not investment advice. The author holds LHX shares.
L3Harris has three segments. Space & Mission Systems builds satellites, sensors and aircraft systems. Communications & Spectrum Dominance makes tactical radios and electronic warfare equipment, its most profitable unit. Missile Solutions makes solid rocket motors and propulsion for interceptors such as THAAD and PAC-3, a bottleneck for U.S. munitions supply.
In January 2026 the Pentagon committed a $1 billion investment in Missile Solutions ahead of a planned IPO of that business; L3Harris has since pushed the IPO to mid-2027.
Second-quarter revenue rose 8%, orders of $7.3 billion took the backlog to a record $42 billion, and Missile Solutions grew 14%. The company raised its 2026 revenue and EPS guidance and kept free cash flow at about $3.0 billion. Its 2028 framework targets about $27 billion of revenue and $3.5 billion of free cash flow.
The shares fell anyway, first on the IPO delay and debt, then in August when the board removed CEO Christopher Kubasik for a conduct violation and named insider Sam Mehta as his successor.
| FY2021 | FY2022 | FY2023 | FY2024 | FY2025 | TTM Jul 2026 | |
|---|---|---|---|---|---|---|
| Revenue | $17.8B | $17.1B | $19.4B | $21.3B | $21.9B | $22.9B |
| Operating margin | 11.8% | 6.6% | 7.3% | 9.0% | 9.6% | 10.1% |
| Net income | $1.8B | $1.1B | $1.2B | $1.5B | $1.6B | $1.9B |
| Operating cash flow | $2.7B | $2.2B | $2.1B | $2.6B | $3.1B | $3.3B |
| Capital spending | $0.3B | $0.3B | $0.4B | $0.4B | $0.4B | $0.5B |
| Free cash flow | $2.3B | $1.9B | $1.6B | $2.2B | $2.7B | $2.8B |
Revenue jumped in 2023 with the Aerojet Rocketdyne purchase. Operating margin on a GAAP basis is held down by amortization of acquired intangibles; cash flow, which adds that back, is the better measure and has grown every year. The FY2025 revenue figure is from the company’s release.
Debt is about $11.0 billion against $1.5 billion of cash, mostly from the Aerojet deal, with net interest of about $560 million a year. The company also received $973 million from the Pentagon’s preferred-stock investment in Missile Solutions, which the model treats like debt. It pays a $1.25 quarterly dividend ($5.00 a year, raised from $4.80 in January) and is buying back stock.
Because GAAP profit understates cash generation, this model works directly from free cash flow to the firm (free cash flow plus after-tax interest), following the company’s own path to 2028.
| Assumption | Base case | Basis |
|---|---|---|
| Revenue, 2026 | $23.45B | Guidance midpoint |
| Growth, 2027 and 2028 | 7.5% a year | Reaches the $27B 2028 target |
| Cash flow to the firm | $3.65B, then $3.95B, then 14.6% of revenue | $3.0–3.5B free cash flow plus after-tax interest |
| Growth after 2028 | Fades to 3% by year 10 | A straight glide to long-run economic growth |
| Discount rate | 7.9% | Beta 0.80 (defense peers; the measured 0.61 understates risk after this year), about 19% debt |
| Terminal growth | 3.0% | In line with long-run economic growth |
| Bear | Base | Bull | |
|---|---|---|---|
| Growth, 2027 / 2028 | 4% / 3% | 7.5% / 7.5% | 10% / 9% |
| Cash flow, share of revenue | 12.5% | 14.6% | 15.5% |
| Discount rate | 8.9% | 7.9% | 6.9% |
| Value per share | $231 | $436 | $652 |
| Probability | 25% | 50% | 25% |
Weighted 25/50/25: $439.
| Discount rate | 7.0% | 7.5% | 8.0% | 8.5% | 9.0% |
|---|---|---|---|---|---|
| Value per share | $547 | $480 | $427 | $383 | $346 |
Every figure in this valuation comes from one model script, rerun and checked against this page each time the site is built. The XLSX model rebuilds it in live formulas: change any blue input and every year’s cash flow, the bridge to the value, the scenarios and the sensitivity table recalculate.
| To reach today’s price, you need | Instead of |
|---|---|
| Long-run cash flow of only about 9% of revenue | 14.6%, in line with guidance |
| Or a discount rate of about 10.9% | 7.9% |
In other words, the price only makes sense if the 2028 cash targets are badly missed or defense is treated as being as risky as a tech stock.
| Risk | Why it matters |
|---|---|
| Leadership | A new CEO after a conduct-related exit, and shareholder law firms have opened investigations. |
| Execution | About 60 new production buildings and a missile ramp through 2029; fixed-price contracts can bring overruns. |
| Debt | Interest of about $560 million a year limits flexibility. |
| Budgets | Defense spending depends on Congress; the IPO depends on markets. |
Upside: missile demand, space programs, and the Missile Solutions IPO putting a public value on the fastest-growing part of the company.
The backlog is at a record and cash-flow guidance is intact; the selloff followed a CEO change and a delayed IPO. The bear case is close to today’s price, which is the main warning.
What would change the value: A cut to the $3.0 billion cash-flow guidance or new findings from the conduct investigation would lower the value.
Ranges, not three cases. The expected value is the average of 4,000 runs of this report’s own model, with every input drawn from a range: the base case is the middle, and the bear and bull cases are the 10th and 90th percentiles. Business inputs move together; the discount rate moves on its own. The 25/50/25 weighting in the valuation section gives $439. How the ranges work
Two different questions. The rating is relative: it asks whether the stock is cheaper or dearer than the S&P 500 on the same assumptions. The absolute view asks whether it is worth its price at all: on its own the stock trades 71% below our estimated value.
On the same assumptions every report uses (a 5.15% Treasury yield and a 4.5% equity premium), the S&P 500 itself is worth about 68% of its price. The rating compares each stock with that: Buy if it is at least 15% cheaper than the market on this basis, Sell if at least 15% dearer, Hold in between. It is the same rule for every company, whoever owns it. The rating is the same whether the index is assumed to grow 6% or 10% a year. How ratings work
| Measure | L3Harris | Industry median | Rank | |
|---|---|---|---|---|
| Revenue growth, last fiscal year | 9.8% | 10.1% | 7 of 12 | Worse than the median |
| Operating margin | 10.1% | 10.6% | 8 of 12 | Worse than the median |
| Price to earnings | 25.3× | 29.6× | 6 of 12 | Better than the median |
| Free cash flow yield | 5.9% | 3.1% | 3 of 12 | Better than the median |
Peers: the 11 other S&P 500 companies in Aerospace & Defense with complete data (AXON, BA, GD, GE, HII, HWM, LMT, NOC, RTX, TDG, TXT). Last twelve months where reported, from SEC filings; prices from the latest close. A lower price-to-earnings ratio ranks higher. These figures update with each data run; the rating does not.
The backlog is at a record; the price reflects the boardroom, not the order book.