Why L3Harris Might Be The Most Undervalued Stock in the Defense Sector

Key Takeaways:

• L3Harris Technologies Inc. (NYSE: LHX) trades at lower valuation multiples despite delivering steady contract growth and strong positioning in modern defense segments.

• Behind the scenes, LHX is building strength in areas the market increasingly cares about: space tech, secure communications, and classified defense systems.

• With a growing backlog and steady cash flow, it’s the kind of stock that quietly builds momentum, until the market eventually catches up.

A Quiet Climb in a Defensive Sector

Defense stocks don’t always make headlines, until something goes wrong. Over the past year L3Harris Technologies Inc. has been doing what a lot of investors want right now, which is staying steady, delivering results, and building long-term contracts. 

As of early June, shares of L3Harris were trading at approximately $242, down around 3.2% year-over-year. That’s a modest decline, especially when you consider the broader market chop and the fact that Lockheed Martin (NYSE: LMT), a bigger defense peer, gained less than 4% over the same period. From a valuation standpoint, L3Harris is also smaller than both LMT and RTX (NYSE: RTX), with a market cap of roughly $44.87 billion compared to RTX’s $185.70 billion.

That size gap might explain why the market still prices LHX at a discount, but the fundamentals tell a different story. The company continues to generate solid free cash flow, expand its presence in next-gen battlefield technologies, and build out capabilities in space and missile defense. 

For investors looking beyond the headlines, the disconnect between what LHX is doing and what it’s currently worth might not last forever.

Valuation Breakdown: Underrated by the Numbers

L3Harris doesn’t necessarily trade like a market favorite currently, but the numbers suggest that it deserves a closer look. Right now, it has a P/E ratio of 28.71, which lands between Lockheed Martin at 20.60 and RTX Corp. at 40.78. Not the cheapest, not the most expensive, just sitting quietly in the middle.

Its dividend yield comes in at 1.98%, just slightly ahead of RTX, and a bit behind LMT‘s 2.76%. Again, nothing flashy, but it adds to the picture of a company that’s stable and returning value to shareholders.

But behind the scenes, LHX has made progress. It focused its operations, kept cash flow steady, and moved deeper into areas like electronic warfare, space systems, and next-gen battlefield tech. Investors may still be cautious after past M&A deals or slower revenue growth, but the core business is holding up well.

If the company continues to deliver, the market may have to reprice that story. For now, the stock still looks like it’s being overlooked.

Where The Growth is Coming From

L3Harris isn’t putting all its weight behind one big program. Instead, it’s building momentum across a mix of high-impact defense segments that offer more than just short-term wins.

Space and Airborne Systems: A Quiet Momentum

These systems are one of its fastest-growing areas. The company develops sensors, payloads, and support systems for missions ranging from ISR and missile tracking to weather and navigation. It also works on the ground systems that power satellite communication and defense, plus advanced avionics and electronic warfare tools.

Tactical Comms and Classified Wins

Tactical Communications is another key element. LHX delivers integrated systems that help military teams stay connected in the field that’s secure, fast, and built for high-pressure environments. Then there’s the classified and cyber defense work, much of which doesn’t show up in headlines but continues to grow in priority and funding.

In Q1 2025, L3 Harris reported $5.52 billion in revenue and raised its cost-saving target to $1.2 billion for the year. Compared to Lockheed Martin’s heavier reliance on the F-35 or RTX‘s commercial aviation exposure, LHX‘s diversified defense-first model looks well positioned for what’s ahead.

Short-Term Catalysts: What Could Move the Stock This Year

L3Harris might not make the loudest headlines, but a few developments could give the stock real momentum this year. First, the FY2025 defense budget is leaning heavily into modernization and readiness, two areas where L3Harris already has a strong presence. More funding means more room for the kind of advanced tech the company is building within modern defense segments.

That momentum is already evident when looking at contracts. L3Harris recently picked up a $90 million deal with the U.S. Space Force to improve space domain awareness, essentially helping the military better detect and track objects in orbit. Additionally, the company landed close to $300 million from the Army to deliver mission-critical comms gear as part of the HMS program. Both deals reinforce its role in next-gen defense infrastructure.

By contrast, some of its peers are navigating challenges. Lockheed Martin is still wrestling with F-35 cost issues, and RTX remains tied to commercial aerospace, which doesn’t have the same insulation from market volatility.

In a defense-heavy environment, LHX‘s steady contract flow and focus on core military needs could give it a clearer path forward.

Long-Term Upside: Space, Security, and Modern Warfare

L3Harris is busy positioning itself for the future of defense. Instead of relying on one big program, it’s spreading its bets across some of the most important areas in modern warfare, space systems, secure communications, and battlefield technologies that integrate AI.

Tracking Global Defense Priorities

Its strategy lines up with broader U.S. and NATO priorities around modernization and readiness. L3Harris’s focus on modern defense tools lines up with the broader defense shift toward modernization, especially in areas getting more funding attention in recent U.S. and NATO strategy updates.

Leadership is also staying confident. In its most recent earnings report, L3Harris reaffirmed its full-year outlook and highlighted its long-term investments in high-margin areas. And because the company generates strong free cash flow and continues to reinvest in core segments, it has the flexibility to keep building for what’s next.

In a sector where demand is often tied to cycles and political shifts, LHX‘s focus on foundational technologies, backed by steady government contracts, gives it a rare kind of staying power.

Risks and Headwinds

L3Harris has a lot going for it, but it’s not without challenges. The Aerojet Rocketdyne acquisition is still being absorbed, and like with any big deal, there’s always a chance the integration takes longer or costs more than expected.

There’s also some margin pressure to watch. Inflation, wage costs, and supply chain friction have been hitting defense contractors across the board, and L3Harris isn’t immune. Recent revenue growth has been solid, but not exactly explosive, so any slowdown in contract wins could take the shine off in the short term.

Then there’s the bigger picture: L3Harris is closely tied to U.S. and allied defense budgets. If priorities shift or possession gets delayed, something that’s been happening more often, some of that steady momentum could stall. None of this breaks the long-term case, but it’s worth keeping in mind if you’re expecting a quick payoff.

Is the Market Mispricing LHX?

L3Harris is sitting on a strong foundation, playing in the right growth areas like space systems, secure comms, and cyber, and is still trading at a discount to peers.

Investors may be overlooking how well-positioned LHX really is. While others lean heavily on one or two flagship programs, L3Harris is quietly building a diversified, future-ready defense portfolio that lines up with where global spending is heading.

If margins stay healthy and contract wins keep coming in, the market may have to rethink how it values this stock. Over the next 12 to 18 months, there’s real potential for a rerating.

Featured Image is AI generated