L3Harris Technologies (LHX)
L3Harris converts profit into cash faster than any other prime in this set: FY2025 free cash flow ran to 170% of net income.
Educational analysis for professional use. This profile is not investment advice or a recommendation to buy or sell any security, and it is not personalised.
Snapshot
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, distinct from a platform prime built around one major weapon system, such as Lockheed Martin and its 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 actually 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 specifically; compare it carefully against GD's funded/unfunded totals or BAE's Group order backlog rather than treating the headline figures as like-for-like.
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 lower cash generation relative to today's market cap.
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.
Funded backlog and FCF conversion are the inputs. This primer takes them to a ten-year cash-flow value and an FCF yield you can screen.
The Excel model is the primer's two archetype builds live across 11 sheets: a ten-year, backlog-driven free-cash-flow DCF with a Gordon terminal. Change the book-to-bill, the FCF conversion ratio or the WACC and the value per share moves; the backlog, conversion-bridge and concentration sheets update alongside it.