L3Harris Technologies Inc LHX

L3Harris Is Solidifying Its Recently Assembled Defense Contracting Franchise

L3Harris Technologies is the sixth-largest US defense contractor by sales. It formed in 2019 from the merger of L-3 Technologies, a decentralized and acquisitive maker of sensors, and the Harris Corporation, a sensor and radio manufacturer that ran a more unified business. Underpinning the merger was an assumption that additional scale would primarily generate cost synergies and, eventually, the firms could produce meaningful revenue synergies. The recent additions of ViaSat's tactical data-link business and the $4.7 billion acquisition of Aerojet Rocketdyne have opportunistically vaulted L3Harris' strategy into becoming a more well-rounded defense prime contractor. These additions have brought munitions, space exploration, and hypersonic missile components and capabilities to its very radio- and communications-heavy base. That said, Aerojet supplies components to many other defense contractors, which isn't likely to change, and competes with the space segment of Northrop Grumman. We think it will take time for meaningful revenue synergies that weren't already in the backlog for L3Harris, ViaSat, or Aerojet to materialize.