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L3Harris (LHX) Stock Looks Below Fair Value On Cash Flow

Simply Wall St · 3d ago

L3Harris Technologies has seen its share price fall sharply this year, even after a strong multi year run. This puts fresh focus on whether the current valuation lines up with the cash the business is expected to generate. With investors already reacting to recent weakness, the key issue now is what the stock price implies about the durability and timing of those future cash flows.

  • Over the past 3 years, L3Harris Technologies has delivered a 44.6% return, so a lot of investor capital is now tied to the question of how much cash the business can produce over time.
  • The company’s defense focused model can support relatively visible long term contracts, which may influence how steadily cash flows are expected to arrive and how much investors are willing to pay for them today.
  • If you'd rather focus on earnings, this one's for you. See what L3Harris Technologies's 23.9x P/E says about the price.

The issue now is whether the current share price around US$239 is justified by L3Harris Technologies’ projected cash flows when assessed against an intrinsic value estimate based on a Discounted Cash Flow (DCF) approach.

If you want to stress test this cash flow question beyond L3Harris Technologies, you can compare it with a wider group of 30 high quality undervalued stocks

Is L3Harris Technologies Still Cheap on Cash Flow?

The Discounted Cash Flow (DCF) approach here values L3Harris Technologies on the cash it could return to shareholders over time. Latest twelve month free cash flow is about $2.83b, so the model already starts from a sizeable cash generation base rather than a speculative turnaround story.

Analysts feeding into this 2 Stage Free Cash Flow to Equity model expect L3Harris Technologies to keep producing multi billion dollar free cash flows, with projections reaching roughly $4.05b by 2030 before a slower phase kicks in. When those future streams are discounted back to today, the DCF output suggests an intrinsic value that sits substantially above the current share price of $239.21. That gap raises the question of whether the recent share price pullback reflects shorter term concern or a more cautious view on how reliable those future cash flows really are. Find out what L3Harris Technologies could be worth using our Discounted Cash Flow (DCF) estimate.

The L3Harris Technologies Narrative: What Would Justify Today's Price?

Narratives for L3Harris Technologies sit between the DCF puzzle and the share price by spelling out what path for growth, profitability and earnings would need to occur for the stock to be worth materially more or less than it is today, and they sit on Simply Wall St's Community page. Each one sets out a different set of assumptions behind its estimate of fair value so you can weigh those inputs against future results as they are reported.

One of the top community narratives on L3Harris Technologies: 30% undervalued

"The main factor that has to go right is that L3Harris Technologies executes on its large missile and space programs while managing supply chain constraints..."

Discover why this Narrative puts L3Harris Technologies at 30% undervalued.

Before leaving L3Harris Technologies, one more check belongs beside the price tag

Valuation is only half the picture for L3Harris Technologies, because internal checks have also flagged specific risk signals that deserve a closer look before you lean on any cash flow story. Take a closer look at 1 warning sign before settling on a valuation.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.