Credit Suisse Sees Positive Valuation Path For L3Harris But Prefers Lockheed Considering Macro Climate

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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