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L3Harris Wins $3B for Skyraider II, Mixed Outlook Ahead

L3Harris secures a $3 billion contract for the Skyraider II. The plane is designed for multiple military missions but faces hurdles with limited earnings growth forecasts.

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AI Rating:   5

Investor Analysis of L3Harris Technologies

L3Harris Technologies has recently been awarded a $3 billion contract to deliver modified Air Tractor AT-802U Sky Warden turboprop aircraft for the U.S. Special Operations Command. The big opportunity presented by this contract could have implications for L3Harris's stock price as well as investor sentiment.

Revenue Growth

The Skyraider II program may generate as much as $580 million in incremental revenue for L3Harris as early as this year. While it's only 2.7% of the company's annual revenue, any significant revenue growth is important for attracting investor interest. Analysts speculate that delivering operationally configured planes could begin soon, and this could provide the company with positive momentum.

Earnings Growth Concerns

Despite the potential revenue boost from the Skyraider II program, there are broader concerns regarding earnings growth. Analysts expect that L3Harris will struggle to grow earnings at a rate faster than 7% annually over the next five years, which casts a shadow on the company's valuation given that its current price-earnings ratio stands at 28. This slow growth could deter investors looking for more aggressive stock performance.

Potential Competition

Furthermore, there are 22 potential overseas buyers showing interest in the Skyraider II, which could expand L3Harris's reach. However, competition with established products and potentially lower-cost alternatives could impact future revenue projections and market share.

In summary, while the recent contract for the Skyraider II may spark short-term interest and revenue for L3Harris, the uncertain long-term earnings growth forecast and high valuation metrics inhibit a completely positive outlook. Investors should weigh these factors carefully before making decisions related to the stock.

Stocks:  LHX