L3Harris stock under pressure as Morgan Stanley highlights competitive disadvantages
On Friday, Morgan Stanley downgraded L3Harris Technologies (NYSE:) stock from Overweight to Equalweight and reduced the price target to $257 from $275. The adjustment reflects a strategic shift based on comparative industry analysis and recent financial developments.
The downgrade results from a reassessment of L3Harris’s growth prospects relative to its peers within the defense sector. The firm’s year-to-date backlog growth, which is approximately 3% behind its competitors, suggests that others in the industry may see more significant benefits from the easing of supply chain constraints.
Additionally, L3Harris’s recent acquisition of Aerojet has increased its debt levels, with leverage reaching around 3.2 times by the close of the second quarter of 2024. This elevated debt is expected to restrict the company’s near-term capital deployment capabilities compared to other prime defense contractors.
Despite these concerns, Morgan Stanley acknowledges that L3Harris’s stock remains attractively priced when considering price-to-earnings (P/E) and price-to-free cash flow (P/FCF) ratios in comparison to other companies in the sector.
Nonetheless, the firm anticipates that peers with greater freedom in capital deployment will likely experience more substantial share price growth.
InvestingPro Insights
In light of Morgan Stanley’s recent downgrade of L3Harris Technologies (NYSE:LHX), a closer look at the company’s financial metrics and market performance can provide additional context for investors. According to InvestingPro data, L3Harris boasts a market capitalization of $43.75 billion, reflecting its significant presence in the Aerospace & Defense industry. While the P/E ratio stands at a relatively high 36.72, the adjusted P/E ratio for the last twelve months as of Q2 2024 is more favorable at 25.58, suggesting a better valuation relative to near-term earnings growth.
InvestingPro Tips highlight that L3Harris has a track record of raising its dividend for 22 consecutive years, which aligns with the company’s dividend yield of 2.01% as of the latest data. This consistent dividend growth, including a 1.75% increase in the last twelve months as of Q2 2024, may appeal to income-focused investors. Additionally, 12 analysts have revised their earnings estimates upwards for the upcoming period, indicating a positive outlook on the company’s profitability, which is further supported by the predicted net income growth this year.
For investors seeking more detailed analysis and additional insights, there are 11 more InvestingPro Tips available at: https://www.investing.com/pro/LHX. These tips delve deeper into the company’s financial health, stock performance, and industry standing, providing a comprehensive investment perspective on L3Harris Technologies.
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