Hook / Thesis
L3Harris Technologies (LHX) is one of those companies every portfolio holds a little respect for - durable defense franchises, consistent contract revenue and a dependable dividend (recently $1.20 per quarter). Its Q3 fiscal 2026 print continued the steady march of sequential growth: revenues of $5.659 billion, operating income of $621 million and diluted EPS of $2.46. Those numbers underpin the “too important to fail” narrative.
That said, the market has aggressively re-priced the stock. The last trade in the snapshot shows a price near $343.70 (01/14/2026). Using the most recent diluted share count (~188.1 million), the implied market capitalization is roughly $64.6 billion. At a rough TTM EPS of about $8.96 (sum of the last four quarters: 02/??/2024 to 10/03/2025), that works out to a P/E north of ~38x
What the business does and why the market should care L3Harris is a diversified defense prime: legacy software-defined radios plus franchises in uncrewed aerial vehicles, sensors, avionics, space systems, missiles and solid rocket motors. Beyond hardware, it provides mission support and training and even runs FAA communications infrastructure. That mix creates a defensible backlog and recurring revenue from long-term contracts and sustainment work. Why the market watches L3Harris closely: Those features make LHX a stable, defensive-ish holding in a portfolio. But stability alone does not justify paying a premium multiple unless growth or margin expansion is baked in. Recent financial picture - concrete numbers In short: top-line growth is present and profitability is improving sequentially, but leverage and financing flows are meaningful - not invisible - and warrant respect when valuing the name. Valuation framing The snapshot price (~$343.70 on 01/14/2026) multiplied by diluted shares (~188.1m) implies a market cap of roughly $64.6bn (this is an estimate based on the last reported trade and share count). Aggregating the last four reported quarterly diluted EPS figures (Q4 2024: ~$2.02, Q1 2026: ~$2.04, Q2 2026: ~$2.44, Q3 2026: ~$2.46) gives a TTM EPS near $8.96. That implies a P/E in the high 30s. Context matters: high-single-digit organic growth and margin expansion could justify a premium, but L3Harris is not a pure software growth multiple business. It's capital intensive and carries material interest expense (quarterly interest operating expense lines in filings were non-trivial). With liabilities >$21bn, any valuation must factor in leverage and the sensitivity of defense funding and program timing. Peers are not provided in the dataset for direct multiples, so I frame valuation qualitatively: compared with industrial defense primes historically trading in the mid-to-high teens P/E on normalized earnings, a ~38x multiple demands visible acceleration in earnings or structural multiple re-rating drivers (e.g., major buybacks, breakthrough margin improvement, or sustained government spending tailwinds materially above current expectations). Catalysts (what could move the stock)
(reported 01/05/2026) - further portfolio pruning could change leverage and ROIC dynamics.
Trade idea - actionable
Directional view: Short / Fade strength. Time horizon: swing (weeks to a few months). Risk level: medium.
Why this trade now: the stock's multiple is elevated relative to its business mix and balance-sheet profile. The market has priced in perfect execution and persistent margin improvement; that leaves room to fade rallies and take profits if contract timing or macro news disappoints.
Trade plan (size to risk tolerance, typical allocation 1-3% of portfolio):
- Entry: initiate short on strength between $345 - $360 (prefer staggered entries).
- Stop: cover/stop-loss at $372 (roughly 8% above the top of entry band) to protect against a momentum gap.
- Targets:
• Partial cover at $300 (first target - liquidity and psychological support).
• Add or hold toward $260 (second target) if broader multiple contraction or contract timing slips.
- Alternative (options): buy puts with 30-60 day expiry struck near $350, or sell calls against a small covered position if you hold shares and want premium; sizing to limit max loss to predefined allocation.
- Risk management: cap any single-trade loss to no more than 2% of total portfolio; tighten stops to breakeven after first target achieved.
Risks and counterarguments
There are several reasons this trade could fail; L3Harris is a high-quality defense prime with real leverage to geopolitical-driven spending:
- Risk 1 - Budget upside: A surprise multi-year defense spending increase or a large prime contract award would validate the valuation and send the stock higher. Recent headlines note elevated defense spending discussions that could easily create positive re-rating pressure.
- Risk 2 - Asset sales / balance sheet improvement: Management is actively reshaping the portfolio (e.g., the 60% space unit sale for ~$845m reported 01/05/2026). More accretive divestitures or an aggressive buyback could justify a higher multiple.
- Risk 3 - Execution and backlog: The company has consistent sequential earnings improvement. If management sustains revenue and margin improvement, the high multiple may look warranted and shorts will be squeezed.
- Risk 4 - Liquidity / gap risk: Defense stocks gap on overnight political news. Short positions require disciplined stops because sudden geopolitical escalation can produce rapid downside-to-upside reversals.
Counterargument to the short thesis: One could reasonably argue L3Harris deserves a premium: it operates in structurally growing defense and space markets (ISR, hypersonics, space traffic management), produces steady operating cash flow (quarterly operating cash >$500m in recent prints), and returns cash via a healthy dividend. If the backlog turns into sustainable higher-margin execution and leverage declines, the stock may maintain or expand its multiple.
What would change my mind
- If the company reports a string of quarters showing >10% year-over-year organic revenue growth plus operating margin expansion of >300 bps while simultaneously reducing net leverage materially (e.g., liabilities falling relative to cash), I would reassess and consider a long bias.
- If management initiates a large, well-funded buyback program or returns leverage to conservative levels through targeted sales and sustained FCF >$2.5bn annually, my valuation view would shift.
Conclusion
L3Harris is a well-run, strategically important defense contractor with attractive cash generation and a reliable dividend. That makes it a sensible core holding for many investors. For active traders, however, the current price regime and implied valuation demand either visible, durable earnings upside or balance-sheet repair. Because neither is fully documented in the most recent filings and because geopolitical headlines can create short-term volatility, my tactical recommendation is to fade strength - sell into rallies with disciplined stops and defined profit targets. Treat any position size conservatively and be prepared for event-driven whipsaw in this sector.
Disclosure: This is a trade idea and not personalized financial advice. Adjust position sizing for your portfolio and risk tolerance.
Key documents referenced: quarterly filings through 10/03/2025 (accepted 10/30/2025) and market snapshot 01/14/2026.