LHX Soars: New Defense Deal with EDGE Group Unveiled!

New UAE Defense Partnership Fuels Momentum

L3Harris Technologies (NYSE: LHX) has gained fresh momentum after announcing a new defense collaboration with the UAE’s EDGE Group. On November 18, L3Harris signed a memorandum of understanding (MoU) with EDGE to jointly develop advanced defense solutions in artificial intelligence and autonomy, bolstering the UAE’s military capabilities (^[1]). This partnership expands L3Harris’ presence in the Middle East – the company has operated in the UAE for 35 years – and aligns with its strategy of global growth through innovation. Investor reaction has been positive: LHX stock jumped over 5% in late October after strong Q3 earnings and news of international contracts (^[2]), and the EDGE Group deal reinforces optimism around L3Harris capturing further global opportunities.

Dividend Policy and History

L3Harris is a consistently shareholder-friendly company with a 24-year streak of annual dividend hikes. In February 2025, the Board approved a quarterly dividend increase from $1.16 to $1.20 per share, raising the annualized payout from $4.64 to $4.80 and marking the 24th consecutive yearly increase (^[3]). This growth streak, sustained through mergers and industry cycles, underscores management’s commitment to return cash to investors. Despite the steady raises, the dividend yield remains modest at about 1.6% at recent share prices (^[4]). (By comparison, defense peer Lockheed Martin yields nearly 3% (^[5]).) The lower yield reflects L3Harris’ focus on reinvesting for growth alongside dividends. Even so, the payout has grown substantially over time – annual dividends per share were $4.56 in 2023 and $4.08 in 2021, for example, showing high single-digit percentage increases before more recent smaller tweaks. In addition to dividends, L3Harris returns cash via opportunistic share buybacks. The diluted share count fell to about 188.6 million in 2025 from 190.7 million a year prior (^[6]), indicating the company repurchased stock after pausing buys during its major 2023 acquisition.

Leverage and Debt Profile

L3Harris’s leverage rose in 2023 due to strategic acquisitions, but remains manageable with an investment-grade credit profile. To finance its $4.7 billion purchase of Aerojet Rocketdyne (and a tactical datalink unit), L3Harris issued $5.5 billion in new long-term debt in 2023 (^[7]). This drove total long-term debt to roughly $11.2 billion (net of repayments) as of year-end 2023, nearly double the prior year’s level. Even with the higher debt load, the company has no immediate liquidity issues and carries a balanced maturity schedule. The debt maturities are laddered over coming years, though a sizable tranche is due soon: about $2.85 billion matures in 2025 (^[7]). (This likely includes a term loan due in late 2025.) Other maturities are more moderate, at ~$0.65B in 2026, $1.25B in 2027, and $1.88B in 2028, with around $4.3B thereafter (^[7]). L3Harris will need to either refinance the 2025 maturities or pay them down using cash flow and new debt issuance. The company’s interest costs did jump with the added leverage, but refinancing has so far been orderly; Moody’s and S&P have affirmed L3Harris in the solid mid-BBB credit range (indicative of adequate capacity to meet obligations). Overall leverage ratios should improve as earnings grow and as management prioritizes some debt reduction post-acquisition.

Cash Flow Coverage and Financial Strength

Despite the higher debt, L3Harris maintains healthy coverage metrics. The interest coverage ratio (EBIT divided by interest expense) stands around 4.1× as of Q3 2025 (^[8]), reflecting that operating profits comfortably cover interest obligations by over four times. This figure, while lower than a year ago due to acquisition financing, indicates that L3Harris’ debt burden is manageable given its earnings power. Meanwhile, the dividend is well-supported by cash generation. In 2024, L3Harris produced $2.6 billion in operating cash flow and $2.3 billion in adjusted free cash flow (^[9]). By comparison, cash dividends consumed roughly $0.86 billion for the full year (^[7]) – only about 37% of free cash flow – yielding a comfortable dividend coverage of nearly 2.7×. In other words, the company retained ample cash after paying shareholders, which it has used for debt servicing, buybacks, and reinvestment. This cushion suggests the current dividend level is secure, with room for continued increases. It’s also worth noting L3Harris achieved these cash flows while integrating a major acquisition and ramping capital expenditure (including a new rocket motor factory). Management’s focus on cost efficiency (via its “LHX NeXt” initiative) is improving margins and helping convert revenue into robust cash flow. Altogether, coverage ratios for both interest and dividends indicate L3Harris has a solid financial foundation to support its strategic plans and shareholder payouts.

Valuation and Comparables

After the recent rally, LHX shares trade around $280–$300, which corresponds to roughly 20× forward earnings on an adjusted (non-GAAP) basis. This valuation is a slight premium to some larger defense peers, but carries an expectation of higher growth. L3Harris’ dividend yield of ~1.6% (^[4]) is lower than peers like Lockheed Martin at ~2.9% (^[5]) or Raytheon Technologies (~3%yield), underscoring that investors are valuing LHX more for its future expansion than current income. In terms of cash flow, the stock trades at an EV/EBITDA in the mid-teens, reflecting its healthy margins and recent acquisition-related debt. Importantly, L3Harris boasts a record backlog of $36.3 billion as of Q3 2025 (^[10]) – about 1.6× its annual revenue – which provides visibility into revenue streams. Wall Street analysts broadly view the stock as undervalued relative to its outlook. For instance, Bank of America recently raised its price target to $350 (Buy rating) and Société Générale’s Bernstein unit reiterated an Outperform with a $369 target (^[10]). These targets imply ~20%–30% upside, anchored by L3Harris’s strong execution on its transformation program and alignment with growing Pentagon budgets. A community valuation model similarly estimates a fair value around $330+ per share (^[11]). Overall, LHX’s current pricing appears reasonable given its earnings growth trajectory and synergy potential; if management delivers on guidance, there may be further room for the stock to climb toward peer valuation multiples.

Key Risks and Red Flags

Like all defense contractors, L3Harris faces a range of risks that investors should monitor. A primary risk is government spending volatility – over 70% of LHX revenue comes from the U.S. government and Department of Defense, so shifts in federal budget priorities or procurement delays could materially impact results (^[12]). For example, a flattening or reduction in defense budgets (due to political gridlock or lower threat perception) might slow L3Harris’ growth or pressure its backlog. Additionally, the company warns that changes in contract mix (e.g. more fixed-price vs. cost-plus contracts) and potential unilateral contract actions by the U.S. government (such as termination for convenience) are ongoing risk factors (^[12]). Another operational risk is integration execution: L3Harris must successfully integrate Aerojet Rocketdyne and other recent acquisitions to realize expected synergies. Any missteps could lead to cost overruns or contract performance issues. The company’s increased debt load also introduces interest rate and refinancing risk – if interest rates remain elevated, refinancing the 2025 maturities could increase interest expense and constrain free cash flow. Broader macro issues are also in play: management notes that inflation and supply chain disruptions could pressure margins or delay deliveries (^[12]). In fact, industry-wide supply chain bottlenecks have been a headwind in recent years, though L3Harris has been mitigating these via supplier partnerships and inventory builds. Geopolitical developments present a double-edged sword: while conflicts (e.g. in Eastern Europe or the Middle East) are driving higher demand for defense products, any unexpected de-escalation or shift in threat environment could dampen orders. There is also a regulatory and compliance risk, as defense firms operate under stringent export controls and contract compliance rules – any violation could result in penalties or reputational harm. Lastly, investors should be mindful of program-specific risks: L3Harris often provides subsystems on larger platforms (radios, sensors, space payloads, etc.), so the cancellation or delay of a major program (for example, a satellite or aircraft system where LHX is a supplier) could affect its revenue. While the company’s diversification across domains (air, land, sea, space, cyber) helps spread this risk, no single contractor is immune to the ebb and flow of defense program cycles. In summary, L3Harris acknowledges that competitive pressures, government policy changes, and macro-economic factors could materially affect its performance (^[12]). Investors should keep an eye on these red flags, along with the progress of cost-cutting initiatives (e.g. the LHX NeXt program) which are crucial to protecting margins amid potential headwinds.

Open Questions and Outlook

Several open questions remain as L3Harris moves forward. First, how much tangible business will the new EDGE Group partnership yield? The MoU is a promising strategic step, but it’s preliminary – investors will be watching for actual contract awards in the UAE and broader Middle East. Success could mean new revenue streams in international markets, whereas a lack of follow-through would suggest the deal was more about long-term positioning than immediate financial impact. Second, can L3Harris sustain its current growth and margin trajectory? The company’s own outlook calls for reaching around $24.9 billion in revenue and $2.7 billion in earnings by 2028 (about 5% annual growth) (^[11]). Hitting these targets would likely unlock significant shareholder value – one model pegs fair value near $334/share if achieved (^[11]). However, this depends on continued robust order flow (both domestic and international) and flawless execution. It’s unclear whether the recent double-digit organic growth in Q3 2025 is fully repeatable, or if some was a catch-up from prior supply delays. Another question is capital allocation in the coming years. Now that major acquisitions are digested, will L3Harris prioritize deleveraging, or resume more aggressive share buybacks and larger dividend hikes? Thus far, management has signaled a balanced approach: invest in critical capacity (e.g. the new Arkansas rocket motor plant), integrate acquisitions, and return excess cash to shareholders as performance improves (^[9]). Investors will want to see if debt-to-EBITDA trends downward by 2026, which would create room for more shareholder returns. Lastly, how will the external environment shape LHX’s outlook? The defense industry is in a “new era” of urgency and high demand, according to L3Harris’ CEO (^[12]), driven by geopolitical tensions and rapid technological advances. If this trend persists (with heightened defense budgets in the U.S., Europe, and allied nations), L3Harris is well positioned to benefit given its broad portfolio (from communication systems to space and missiles). Conversely, any cooling of international tensions or political impasse over U.S. defense spending could test LHX’s growth assumptions. Overall, the long-term outlook for L3Harris appears positive – the company has a clear strategy as a “Trusted Disruptor,” a strong backlog, and improving operational efficiency. How effectively it leverages these strengths into consistent earnings growth (and handles the risks discussed) will determine whether LHX can continue its upward trajectory following the EDGE Group deal euphoria. Investors should watch upcoming earnings for updates on international orders and margin progress – these will be key indicators as to whether L3Harris can truly soar to new heights or if turbulence lies ahead. (^[11]) (^[10])

Sources

For informational purposes only; not investment advice.

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