- Credit Suisse analyst Scott Deuschle reiterated an Outperform rating on the shares of L3Harris Technologies Inc LHX with a price target of $240.
- The aerospace and defense company is slated to report its first-quarter FY23 after market close on March 27.
- The analyst estimates Q1 EPS of $2.83, which is $0.06 below Street. However, the analyst sees an upside potential to $2.96 in blue-sky scenario, which is premised on dual supply/demand tailwinds for tactical radios.
- The analyst models sales growth of 4% year-on-year to $4.27 billion with Integrated Mission Systems (IMS) below Street and Space & Airborne Systems (SAS) and Communication Systems (CS) both above.
- The analyst sees some risk of offsets at IMS/SAS, however, so on a risk-adjusted basis expect EPS to land around $2.90.
- The analyst thinks margins at IMS and SAS could be potential headwinds, with IMS impacted by higher labor costs and domestic versus international mix.
- The analyst added that SAS is likely to be negatively impacted by program mix from the SDA Tracking contract, which is a fixed-price development contract.
- The analyst sees the most upside potential at CS—particularly from tactical radios.
- The analyst thinks LHX is still tracking 2-3 potential international ISR contracts that are not in the guide, but which could be additive to growth and help skew risk/reward.
- The analyst likes LHX and sees a positive revision/relative valuation path for the year, but in a macro-driven tape, prefers Lockheed Martin Corp LMT for now.
- Price Action: LHX shares are trading higher by 0.46% at $194.03 on the last check Monday.
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