On October 9, 2023, L3Harris Technologies Inc (LHX, Financial) saw a daily gain of 7.93%, despite a 3-month loss of 8.65%. With an Earnings Per Share (EPS) of 4.19, the question arises: is the stock modestly undervalued? This article presents a comprehensive valuation analysis of L3Harris Technologies Inc (LHX), inviting readers to delve into its financial details.
Company Introduction
L3Harris Technologies provides products for the command, control, communications, computers, intelligence, surveillance, and reconnaissance, or C4ISR, market. The firm produces uncrewed aerial vehicles, sensors, and avionics. It also provides military and commercial training services and maintains the U.S. Federal Aviation Administration's communications infrastructure. In July 2023, L3Harris Technologies acquired Aerojet Rocketdyne, a key supplier of rocket motors to the space and defense industry. With a stock price of $176.88 and a GF Value of $244.01, the company appears to be modestly undervalued.
GF Value Summary
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
According to GuruFocus' valuation method, L3Harris Technologies (LHX, Financial) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 176.88 per share, L3Harris Technologies stock gives every indication of being modestly undervalued.
Because L3Harris Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. L3Harris Technologies has a cash-to-debt ratio of 0.04, which ranks worse than 94.2% of 293 companies in the Aerospace & Defense industry. Based on this, GuruFocus ranks L3Harris Technologies's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. L3Harris Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $18 billion and Earnings Per Share (EPS) of $4.19. Its operating margin is 10.29%, which ranks better than 67.35% of 294 companies in the Aerospace & Defense industry. Overall, the profitability of L3Harris Technologies is ranked 8 out of 10, which indicates strong profitability.
Growth is one of the most important factors in the valuation of a company. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of L3Harris Technologies is 19.8%, which ranks better than 84.47% of 264 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth is 16.1%, which ranks better than 73.91% of 230 companies in the Aerospace & Defense industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, L3Harris Technologies's ROIC was 5.1, while its WACC came in at 8.16.
Conclusion
Overall, L3Harris Technologies (LHX, Financial) stock gives every indication of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 73.91% of 230 companies in the Aerospace & Defense industry. To learn more about L3Harris Technologies stock, you can check out its 30-Year Financials here.
To find out the high-quality companies that may deliver above-average returns, please check out GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
