L3Harris Technologies
Long-cycle US government program contractor (cost-plus + fixed-price), ~75% DoD/government, revenue recognized over time on multi-year programs backed by a ~2x-revenue backlog. Capital-light relative to platform OEMs; cash returned via dividend + buyback while deleveraging post-Aerojet.
The thesis on this name
State of Space & Launch
The most concentrated listed exposure to the space-and-missile-defense buildout with a real margin engine: record ~$40.7B backlog, an $843M SDA Tranche 3 Tracking Layer award for 18 IR missile-tracking satellites (Dec 2025), a newly carved-out dedicated Space & Mission Systems segment, and a fully integrated Aerojet Rocketdyne propulsion franchise that the Department of War backed with a $1B preferred-stock investment for capacity expansion (Q1 2026). LHX NeXt cost savings plus Aerojet synergies drive margin expansion into 2026. It rides the same Golden Dome / SDA demand as the pure-plays but with prime-grade cash flow, dividends, and diversification.
Earnings, margins, COGS & capex
L3Harris is re-accelerating: Q1 FY26 revenue grew +15% organic to $5.744B with GAAP EPS +33% to $2.72, lifting backlog to a record $40.7B (1.4x book-to-bill). Growth is led by the new Space & Mission Systems segment (+24% YoY, ~$11.5B FY26 target) and Missile Solutions (+18%), while the high-margin Communication & Spectrum Dominance unit (~25% OM) is the profit anchor. FY26 guidance is $23.0–23.5B revenue, 'low 16%' segment OM, GAAP EPS $11.40–11.60, and ~$3.0B free cash flow.
Income statement — where each revenue dollar goes
% of revenueOf every $1 of revenue, ~75¢ is cost of goods and ~14¢ operating expense, leaving ~11¢ of operating profit (~9¢ net).
Revenue trend
Margins
up
up (FY26 guide 'low 16%')
up
up
up
up
stable
COGS structure
Cost of sales is dominated by direct labor (large skilled engineering/technician base on cost-reimbursable programs), purchased materials and electronic components (sensors, RF/photonics, semiconductors), and subcontractor/supplier content. Solid-rocket-motor propellants/energetics and satellite payload hardware are the materials-heavy lines; fixed-price development programs carry COGS-overrun risk (EAC adjustments). Margin lever is mix toward high-content comms/EW and program execution (LRIP→full-rate).
Capex
Modest base capex (~2–3% of revenue; estimate) for facilities, test ranges, and IT. The capex story is the Missile Solutions solid-rocket-motor capacity expansion at Camden AR, Huntsville AL, and Orange VA — funded partly by the $1B Department of War strategic investment (closed Apr 23 2026) plus internal billions to scale PAC-3/THAAD/Tomahawk/Standard Missile propulsion (fact).
Latest earnings
Beat on the headline; the composition is weaker than the print. Diluted EPS $3.13 versus a $2.80 Zacks consensus (+11.8%) and revenue $5,881M versus $5.79B (+1.5%). But of the $186M YoY increase in pre-tax income, only $83M is operating: $80M came from non-service FAS pension income and other, net ($185M vs $105M, carrying $73M of net investment gains against $6M a year ago) and $23M from lower net interest expense, partly given back by a higher effective tax rate (15.5% vs 12.6%). Net favorable EAC adjustments contributed $0.10 to EPS against a $(0.08) drag in the prior-year quarter. Note the basis mismatch worth flagging: the company's '+28%' compares GAAP $3.13 to GAAP $2.44, while Zacks describes the same result as +12.6% YoY against a different prior-year base. Shares still fell — $297.53 on the day, then to $271.90.
Raised, as of 7/29/2026. FY26 revenue $23.2–23.7B (from $23.0–23.5B, +$200M at both ends); GAAP diluted EPS $11.80–12.00 (from $11.40–11.60, +$0.40); segment operating margin 'low 16%' (unchanged); operating cash flow ~$3.6B and free cash flow ~$3.0B (unchanged), on ~$600M of capex. Per management, the raise reflects stronger revenue, lower interest expense and investment gains, against a ~$0.20 EPS headwind from the commercial space-propulsion divestiture. Segment guides: Space & Mission Systems ~$11,700M (raised from ~$11,500M) at mid-10% margin; Communications & Spectrum Dominance ~$8,000M at mid-25% margin (raised from ~25%); Missile Solutions ~$4,100M at low-12% margin.
- Backlog
- $42.0B record at Jul 3 2026, +$1B YoY; ~40% converts to revenue within 12 months, 65% within 24 (Form 10-Q Note O)
- Segment backlog split
- Space & Mission Systems $22,431M; Communications & Spectrum Dominance $9,031M; Missile Solutions $10,531M
- Orders / book-to-bill
- $7.3B of orders, 1.2x book-to-bill in Q2
- Diluted EPS
- $3.13, +28% YoY — but $0.10 of it is net favorable EAC adjustments (an $0.18 swing from the prior-year $(0.08))
- Segment operating margin
- 16.0% headline (+10bps), ~15.4% excluding $39M of segment investment income newly included in the measure — versus 15.9% a year ago
- Space & Mission Systems
- $2,966M revenue (+7%); operating margin 9.8%, -60bps, and ~9.0% ex a $23M investment gain; carried 'a net increase of $30 million in unfavorable EAC adjustments on two programs'
- Communications & Spectrum Dominance
- $1,943M revenue (+4%); operating margin 26.9%, +230bps, and ~26.0% ex a $16M investment gain — still the profit anchor
- Missile Solutions
- $1,054M revenue (+14%); operating margin 12.3%, -20bps on the absence of a prior-year favorable contract resolution
- Free cash flow
- $771M in Q2 (+37%); $584M YTD; FY26 guide ~$3.0B on ~$600M of capex
- AMDT3 award
- $955M from the Space Development Agency on Jul 13 2026 for 18 HBTSS-like missile-defense-variant satellites supporting Golden Dome; launch-ready by end-2028
- Missile Solutions IPO
- Pushed from 2H26 to mid-2027; the DoW agreement's qualified-IPO deadline remains Dec 31 2027
- Net debt
- $9,478M at Jul 3 2026 vs $10,047M at Jan 2 2026 — reduction financed by $973M of DoW preferred proceeds
Growth drivers
- SDA Proliferated Warfighter Space Architecture — $843M Tranche 3 Tracking Layer award (18 IR missile-tracking satellites, Dec 2025) on top of 4 on-orbit + 34 in development across T0/T1/T2 (fact)
- Golden Dome missile-defense initiative — ~$13–13.4B FY26 funding lifting demand for space-based sensing/tracking and interceptors (fact, agency-level)
- Munitions/propulsion demand — Missile Solutions +18% with ~$25B pending Munitions Acceleration Council orders under negotiation (fact, company-cited)
- Resilient tactical communications & electronic warfare (~25% OM) — modernization, night-vision, and international (fact)
- International defense spend (NATO/Indo-Pacific) and classified ISR/space programs (fact)
- Backlog conversion — record $40.7B at ~2x revenue gives multi-year coverage and visibility (fact)
Reported financials — SEC EDGAR
Audited GAAP figures pulled from SEC filings · latest filing 2026-02-12. The audited primary-source spine — not financial advice.
Revenue — annual (GAAP)
Margins & balance sheet — FY’25
Bull & bear
The Golden Dome leg stopped being a story and became a contract: $955M for 18 AMDT3 tracking satellites, awarded Jul 13 2026, launch-ready by end-2028. Around it, a record $42.0B backlog at 1.2x book-to-bill, all three segments growing, free cash flow up 37%, and a guidance raise at both ends. At ~23x the raised FY26 EPS guide, this is the diversified defense base with the most direct space-and-missile-defense torque.
- Golden Dome is now booked, not hoped for: the Space Development Agency awarded L3Harris $955M on Jul 13 2026 for 18 HBTSS-like missile-defense-variant satellites under AMDT3, explicitly in support of Golden Dome for America, available for launch by end-2028 (SDA release)
- Record $42.0B backlog on $7.3B of Q2 orders and a 1.2x book-to-bill, with ~40% converting inside twelve months and 65% inside twenty-four (Form 10-Q Note O) — multi-year revenue visibility that is contractual, not pipeline
- Beat and raise with breadth: revenue +8.4% with all three segments growing, FY26 revenue guide up $200M at both ends to $23.2–23.7B and GAAP EPS up $0.40 to $11.80–12.00, absorbing a ~$0.20 headwind from the space-propulsion divestiture
- The profit engine got stronger: Communications & Spectrum Dominance margin rose 230bps to 26.9% (~26.0% excluding a $16M investment gain) on higher international volume, and the segment guide was raised to mid-25% from ~25%
- Cash is inflecting: Q2 free cash flow $771M, +37% YoY, against a reaffirmed ~$3.0B FY26 guide — and net debt fell to $9,478M from $10,047M at year-end while the company still returned $461M in the quarter ($229M buybacks, $232M dividends)
- Missile Solutions compounding at 14% with the propulsion capacity build now part-funded by a $1B sovereign anchor investor, and gross margin up 90bps YoY to 25.5% — the mix shift is not yet diluting the underlying cost structure
Strip out the below-the-line help and this was a good-not-great quarter dressed as a great one: $80M of the $186M pre-tax improvement came from pension/investment income, the '16.0% segment margin' only rises because $39M of investment gains were folded into the measure, and ex that it fell to ~15.4%. Meanwhile the named IPO catalyst slipped a year, Space & Mission Systems margin dropped 60bps with $30M of fresh unfavorable EAC on two programs, and the market sold an 11.8% EPS beat down 8.6% two sessions later.
- The Missile Solutions IPO — a stated bull point in our June read, then guided to 2H26 — moved to mid-2027, with Kubasik saying 'market conditions do not reflect the value we're building'; the DoW agreement's qualified-IPO deadline is Dec 31 2027, and missing the contractual milestones by then switches the redemption to a methodology applying a 110% premium to the liquidation preference
- Segment operating margin is flattered by a definitional change: the 16.0% headline includes $39M of 'segment investment income' — a line that was zero a year ago and is not in GAAP operating income. Excluding it, segment margin is ~15.4% against 15.9% in Q2 2025, i.e. DOWN ~55bps rather than up 10bps
- Earnings quality: only $83M of the $186M YoY pre-tax increase is operating. $80M came from non-service FAS pension income and other (carrying $73M of net investment gains vs $6M PY, themselves net of $21M of impairments) and $23M from lower interest expense; net favorable EAC swung EPS by $0.18 of the $0.69 increase
- Fixed-price development risk is showing: Space & Mission Systems margin fell 60bps to 9.8% (~9.0% ex a $23M investment gain) and carried 'a net increase of $30 million in unfavorable EAC adjustments on two programs'; Q1 already took a $31M unfavorable EAC on a legacy domestic naval sensor program
- Deleveraging is financed, not earned: net debt fell to $9,478M, but $973M of that came from selling redeemable subsidiary preferred to the Department of War — an instrument accruing 7% cumulative dividends compounded quarterly, convertible at a 20% discount to the IPO price for ~10% of the subsidiary, with warrants over another 3%
- The tape disagreed with the beat: shares fell 2.51% to $297.53 on Jul 29 and a further 8.6% to $271.90 on Jul 30 — an 11.8% EPS beat and a raised guide bought a ~9% two-day drawdown, which usually means the buy-side had already underwritten more than management delivered
What it is worth
Forward P/E on FY26 GAAP EPS guide ($11.40–11.60) cross-checked with a sum-of-the-parts (high-margin comms/EW + space + Missile Solutions IPO read-through) and peer EV/EBITDA vs. LMT/NOC/RTX.
~$255–285 (de-rate to ~22–24x on a budget CR, recompete loss, or margin charge)
~$355–390 (analyst mean ~$360–390
~30x FY27 EPS as organic growth re-accelerates)
~$400–443 (high-20s/low-30s P/E on rising EPS + IPO value-crystallization and Golden Dome wins)
~28x forward P/E (~$288.50 on ~$11.50 EPS) is a premium to legacy primes but a discount to space-pure-plays; the Missile Solutions IPO is an un-priced SOTP catalyst.
SWOT
Strengths
- Record ~$40.7B backlog at ~2x revenue with 1.4x book-to-bill gives multi-year visibility (Q1 FY26; fact)
- High-margin Communication & Spectrum Dominance franchise (~25% segment OM) anchors profitability and funds investment
- Concentrated, differentiated space/missile-tracking position — SDA Tranche 0–3 incumbency (4 on-orbit, 34 in development, +18 from T3) (fact)
- Vertical propulsion integration via legacy Aerojet Rocketdyne (now Missile Solutions) on PAC-3/THAAD/Tomahawk/SM (fact)
- Diversified across space, comms/EW, ISR and munitions — less single-platform risk than peers
Weaknesses
- ~$10.8B net debt limits flexibility and keeps deleveraging a priority (Apr 3 2026; fact)
- GAAP total operating margin (11.4%) and blended segment OM ('low 16%' target) trail the comms unit — mix dilution from lower-margin space/ISR
- Fixed-price development exposure (e.g., Aerojet goodwill impairment, FY25) creates EAC/charge risk
- Q1 free cash flow is negative and seasonally back-half-weighted — cash conversion lumpy
- Heavy US-government revenue concentration (~75%) ties results to budget/appropriations timing
Opportunities
- Golden Dome multi-layer missile defense — multi-year space-sensing, tracking, and interceptor demand (fact, agency-level)
- Missile Solutions IPO (2H26, retaining >80%) could crystallize value and fund propulsion scale-up (fact)
- ~$25B pending Munitions Acceleration Council orders under negotiation (company-cited; fact)
- Proliferated-LEO constellation cadence (SDA T3 and beyond) and international space sales
- Space-propulsion majority divestiture sharpens the defense portfolio and raises cash (2H26; fact)
Threats
- US defense-budget / continuing-resolution risk and program reprioritization
- Disruption from new-space lower-cost entrants (Rocket Lab, SpaceX, Anduril) on satellite cost/cadence
- Loss of a major recompete (SDA tranche, comms, ISR) to Lockheed/Northrop/RTX
- Solid-rocket-motor supply-chain/energetics constraints capping munitions ramp
- Execution risk on fixed-price space development driving margin charges
Moats, dependencies & bottlenecks
Moats
ISR, EW) Multi-tranche on-orbit track record + security clearances create high switching/qualification barriers; recompetes are sticky.
~25% segment OM (Q1 FY26) signals pricing power and an installed base across US/allied forces.
One of two US solid-rocket-motor sources; scarcity is a moat but capacity-constrained and capital-hungry.
$40.7B (~2x revenue) backlog on multi-year programs is hard for entrants to displace mid-cycle.
Barriers protect against startups but not vs. Lockheed/Northrop/RTX, which are equal or larger.
Dependencies
~75% of revenue; CRs, reprioritization, or Golden Dome funding shifts move the top line directly.
Space growth thesis hinges on PWSA tranche pace; awards now split across 4+ vendors.
Propellant/ammonium-perchlorate and specialty inputs gate the munitions ramp.
Sensor and comms hardware depend on constrained electronic component supply.
Demand is elevated by NATO/Indo-Pacific tension; a de-escalation or budget cap is the cyclical risk.
Export controls gate international growth; DCAA/EAC rules drive charge timing.
Advantages
- Most concentrated listed exposure to space-and-missile-defense with a diversified, cash-generative defense base
- Record $40.7B backlog (~2x revenue) gives unusually high forward visibility
- High-margin comms/EW franchise (~25% OM) funds growth and supports the 'low 16%' segment OM target
- SDA tracking-layer incumbency (4 on-orbit, 34 in development, +18 from T3) into a ~40% Space Force budget uplift
- Vertical propulsion integration (one of two US SRM sources) plus a Missile Solutions IPO value-crystallization lever
Weaknesses
- ~$10.8B net debt keeps deleveraging ahead of buybacks/M&A
- Blended segment margin diluted by lower-margin space/ISR mix vs. the comms unit
- Fixed-price space/development exposure prone to EAC charges (Aerojet goodwill impairment, FY25)
- Negative, back-half-weighted Q1 free cash flow — lumpy conversion
- Heavy US-government revenue concentration ties results to budget timing
- Smaller scale than Lockheed/Northrop/RTX in pure space and platform integration
Bottlenecks
- Solid-rocket-motor / energetics production capacity — the binding constraint on the munitions and missile-defense ramp (driving the Camden/Huntsville/Orange buildout)
- Cleared engineering and technician labor for classified space/EW programs
- Satellite payload and constrained electronic-component (RF/photonic/semiconductor) supply
- Fixed-price development execution — EAC discipline to avoid margin charges
- Net debt (~$10.8B) limiting M&A/capital-return optionality until deleveraged
Top signals & trends
Top signals
$843M T3 (18 sats, Dec 2025); watch whether LHX holds share as awards split across 4 vendors (Lockheed, Rocket Lab, Northrop).
~$13–13.4B FY26 funding; concrete LHX tracking/interceptor awards would be the next leg (fact, agency-level — no LHX Golden Dome award confirmed yet).
Value-crystallizing if priced well (>80% retained), but adds market-timing and de-consolidation risk; not in guidance.
Company-cited pipeline excluded from current backlog; bookings would extend the munitions ramp.
Margin/FCF delivery is the proof the mix shift isn't diluting returns (Q1 FCF -$187M is seasonal).
~$10.8B net debt; pace of deleveraging vs. buyback signals balance-sheet confidence.
Trends
Multi-year, multi-billion demand for space sensing, tracking, and interceptors — core LHX exposure.
Expands the satellite TAM but splits awards across more vendors, including lower-cost new-space.
Pressures satellite pricing and challenges incumbent primes on speed and unit cost.
Reverses the post-Cold-War SRM-capacity drawdown; LHX is one of two US sources scaling up.
International demand for comms/EW, ISR, and munitions supports organic growth.
Backlog cushions near-term, but program timing and starts can slip under continuing resolutions.
Ecosystem & competitor graph
Suppliers feed the company; customers pull from it. Line thickness shows the strength of each tie (supply-chain dependency, customer earnings contribution). Hover to isolate a tie.
Semiconductor / RF & photonics suppliers (e.g., analog/RF chipmakers) Sensors, RF front-ends, and processors for comms, EW, and satellite payloads.
Ammonium perchlorate and specialty energetics for solid rocket motors (Missile Solutions).
Deliver L3Harris-built SDA tracking satellites to orbit; SpaceX/ULA are private/JV.
Specialty optics, focal-plane arrays, and IR sensor components for missile-tracking payloads.
Aerostructures & machined-parts subcontractors Airframe/ISR-aircraft and motor-case fabrication content.
US Department of War / DoD (Space Development Agency, Space Force, MDA) ~75% of revenue; SDA/Space Force are the core space and missile-tracking buyers; $1B DoW investment in Missile Solutions.
Tactical comms, EW, night vision, munitions (PAC-3/THAAD/Tomahawk/SM propulsion).
RS-25 engines for the SLS/Artemis program (retained after space-propulsion divestiture).
International comms/EW, ISR, and munitions sales (FMS and direct).
Classified ISR, SIGINT, and space programs.
Largest defense prime; dominant in space/missile defense (won the largest T3 Tracking Layer share, ~$1.1B) and missiles — direct rival across space and propulsion.
Space systems, solid rocket motors, and sensors; co-awardee on T3 Tracking Layer (~$764M) and a key SRM competitor to Missile Solutions.
Missiles/interceptors (PAC-3 partner, SM family), EW/ISR and avionics — competes on missiles, sensors, and electronics.
New-space disruptor; co-awardee on T3 Tracking Layer (~$805M) and scaling Neutron/space systems at lower cost — share threat on satellites.
Space (incl. legacy satellite/defense) and missile defense systems integration; competes on large space and weapons programs.
Tactical comms/IT and mission systems overlap with L3Harris's communications franchise.