L3Harris Technologies (LHX)

Business Overview

L3Harris builds communications and intelligence hardware rather than whole weapons platforms. It sits in C4ISR (command, control, communications, computers, intelligence, surveillance and reconnaissance) and tactical communications, unlike Lockheed Martin, built around the F-35, or a shipbuilder like General Dynamics. FY2025 revenue was $21,865M, of which US Government revenue (including foreign military sales) was 75%; no other customer exceeded 5%. Contractual backlog stood at $38.7B, with book-to-bill at 1.3x on orders of $27.5B divided by revenue. L3Harris's fiscal year ends on the Friday nearest 31 December, so FY2025 ran to 2 January 2026 (week 52). Market capitalisation was roughly $57.5B as of 10 June 2026 (186.78M shares × $307.89).

Margin follows the mix. Communication Systems, the tactical-radio and comms business, ran a 25.2% segment margin, the highest of any segment across the six-name peer set; Integrated Mission Systems earned 12.2%, Space & Airborne 12.3%, and Aerojet Rocketdyne 9.5% GAAP, well behind the comms side. Adjusted segment operating margin averaged 15.8% company-wide. L3Harris does not disclose programme-level revenue concentration, only the customer split: 75% US Government, no other customer above 5%.

The contract-type guide uses LHX Communication Systems' 25.2% margin as the high end of a subsystem comparison against NOC Mission Systems (14.6%) and GD Combat Systems (14.4%), to show how subsystem mix drives segment dispersion.

How the Numbers Read

GAAP earnings understate what L3Harris generates in cash. FY2025 GAAP free cash flow was $2,736M against net income of just $1,606M, a 170% conversion ratio, the highest in the peer set; adjusted FCF was $2,814M (175% conversion). The FCF conversion guide ranks LHX above LMT (138%), RTX (118%), GD (94%), BAE (92%) and NOC (79%) on this measure for FY2025.

Book-to-bill of 1.3x clears the 1.05 level this site treats as growth territory, ahead of NOC (1.10x) and BAE (1.2x) but behind RTX (1.56x) and GD (1.5x company-wide). LHX reports contractual backlog, so its headline figure is not like-for-like with GD's funded/unfunded totals or BAE's Group order backlog.

Valuation Framework

The gap between LHX's GAAP earnings and its cash generation is wide enough to change which screen an investor reaches for. A method built on free cash flow, the kind GD itself weights at 25% of annual incentive pay per its proxy, reads L3Harris very differently from one built on raw GAAP earnings.

Communication Systems, at 25.2% margin, is the highest-margin segment in the peer set. If tactical radio and classified comms awards accelerate under NATO rearmament and US DoD modernisation ($961.6B FY2026 request), that segment carries the operating leverage; Aerojet Rocketdyne, at 9.5% GAAP margin, is the drag on the average.

What to Watch in the Financials

Communication Systems margin. 25.2% in FY2025 was the highest segment margin in the peer set. Track order mix on tactical radios and software-defined systems to see whether it holds.

FCF conversion sustainability. 170% GAAP conversion in FY2025 is extraordinary; that scale can reflect working-capital release or one-time items as much as underlying trend. Watch whether adjusted FCF ($2,814M) converges toward GAAP FCF ($2,736M) over successive quarters.

Book-to-bill and backlog. Orders of $27.5B against $21.9B revenue, a 1.3x book-to-bill on $38.7B of contractual backlog, point to continued backlog build if the ratio holds.

Aerojet integration. Propulsion runs a 9.5% GAAP segment margin, well below comms. Improvement here would lift the 15.8% adjusted company average.

Key Risks

Customer concentration in US Government. USG revenue is 75% of the total with no other customer above 5%, so appropriations delays or programme cancellations hit without a commercial offset.

FCF conversion normalisation. 170% is unlikely to persist indefinitely. A reversion toward the 90-100% range would cut cash generation.

Low GAAP earnings relative to cash. Net income of $1,606M is a small base next to $2,736M of FCF. An earnings-based screen leaves little room for an earnings miss even where cash generation holds up.

No filed programme concentration. LHX does not disclose a single-programme revenue percentage the way LMT does for the F-35 (27%). Segment-level comms strength is visible in the filings; programme-level concentration risk is not.