L3Harris Poised For 2025 Growth: Analysts Highlight Q3 Earnings Beat, Solid Orders, And Margin Expansion Potential

L3Harris Technologies Inc LHX stock is trading higher after the company reported better-than-expected third-quarter financial results.

On Thursday, L3Harris reported third-quarter revenue of $5.3 billion, up by 8%, topping the analyst consensus of $5.28 billion. The defense contractor reported adjusted EPS of $3.34, above consensus estimates of $3.26.

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L3Harris revised its full-year 2024 revenue guidance from $21 billion—$21.3 billion to $21.1 billion—$21.3 billion. The company also narrowed its full-year EPS forecast from $12.85-$13.15 to $12.95-$13.15.

Analysts rerated L3Harris after the print. Truist analyst Michael Ciarmoli reiterated the Buy rating on L3Harris with a price target of $293. RBC Capital analyst Ken Herbert maintained a Sector Perform rating on L3Harris with a price target of $240.

Truist: L3Harris reported third-quarter revenues of $5.3 billion, marking an 8% year-over-year increase and 5% organic growth, mainly due to strong demand in key segments. Integrated Mission Systems (IMS) posted a 6.6% revenue increase with notable demand in aircraft missionization and munitions electronics. In comparison, Communication Systems (CS) grew by 10%, driven by software-defined radio orders from NATO.

Aerojet Rocketdyne (AR) continued its momentum with 31% growth year-over-year despite missing consensus estimates by 5.8%. Ciarmoli noted that segment margins benefited from NeXt savings, favorable volume mix, and improved program execution.

The NeXt program’s cost savings will likely reach $600 million in 2024, exceeding the previous $400 million forecast. The accelerated savings timeline supports L3Harris’ target to achieve $1 billion in savings one year ahead of schedule.

Third-quarter orders surged 44% year-over-year, with a 1.4x book-to-bill ratio pushing the backlog to $33.6 billion. Standout orders include $600 million for the Next Gen Jammer, a $1.2 billion IDIQ for P-8A, around $1 billion for software-defined radios, and a contract for the Glide Phase Interceptor.

Ciarmoli highlighted that the modest FY guidance lift implies, at the midpoint, a fourth-quarter short of Street. Ciarmoli expects management to provide more insights on future booking trends and segment-specific growth trajectories for 2025.

There’s also a keen interest in the competitive landscape, especially given partnerships with companies like Palantir Technologies Inc and updates on high-priority programs like HADES. Ciarmoli also anticipates commentary on how L3Harris plans to navigate an evolving defense sector with increasing traction from startup defense firms.

RBC Capital: L3Harris reported third-quarter adjusted EPS of $3.34, beating the estimate of $3.23 and consensus of $3.25. Total revenue reached $5.3 billion, an 8% year-over-year increase (5% organic growth), with adjusted segment operating margins at 15.7%, above the consensus of 14.9%. Growth was led by the Communication Systems (CS) segment, up 10%, followed by Integrated Mission Systems (IMS) at 7% growth, while Space & Airborne Systems (SAS) remained flat year-over-year.

Aerojet Rocketdyne (AR) reported $596 million in revenue, marking its final quarter of inorganic contributions since its acquisition in the third quarter of 2023. Adjusted free cash flow (FCF) came in at $728 million, surpassing estimates of $654 million and consensus of $681 million. The company also booked $7.2 billion in orders with a 1.4x book-to-bill ratio.

Strong third-quarter margins led to a year-over-year adjusted segment margin expansion of 80 basis points, with CS margins up by 350 basis points, benefiting from higher volumes, favorable international sales mix, and proprietary license sales. IMS margins expanded by 30 basis points due to solid program performance and efficiencies. SAS margins declined by 90 basis points from weaker program performance and non-recurring license sales from third-quarter 2023.

Following third-quarter results, L3Harris raised its 2024 guidance slightly, now projecting adjusted segment operating margins at approximately 15.5%, up from the previous 15.3% midpoint. Revenue guidance rose by $50 million to a midpoint of $21.2 billion, adjusted EPS increased by $0.05 to $13.05 at the midpoint, while FCF guidance remained at ~$2.2 billion. This improved outlook reflects higher expectations for IMS and CS revenue, margin growth, and better AR segment margins.

Net debt ended at a ratio of 3.1x, on track to fall below 3.0x by fourth-quarter 2024, setting up a favorable position for 2025. This improved debt position supports the potential for share repurchases, as L3Harris aims to return 100% of excess cash post-deleveraging, with $3.4 billion in repurchase authorization available.

L3Harris will host its earnings call, during which Herbert expects to discuss its 2025 growth outlook, margin expansion opportunities, capital allocation plans, and updates on key strategic initiatives, including its recent agreement with Palantir as part of its market expansion efforts.

Price Action: LHX stock is up 3.83% at $253.52 at last check Friday.

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