1. L3Harris Technologies, Inc. (NYSE:LHX)
Short % of Shares Outstanding: 0.66%
Number of Hedge Fund Holders: 40
Forward Price to Earnings Ratio as of August 28: 17.64
L3Harris Technologies, Inc. (NYSE:LHX), operates as an advanced technology company that sells mission systems, space and airborne systems, communication systems, and much more. It operates in the aerospace and defense industry selling its products to government agencies and commercial customers.
L3Harris Technologies, Inc. (NYSE:LHX) already has a strong competitive edge with market-leading capabilities in air, land, sea, and cyber security technologies. In 2023, the company acquired Aerojet Rocketdyne, a leader in aerospace, defense, and rocket propulsion, thereby adding space technologies to its portfolio.
Another strategic edge that sets it apart from the broader market and on track for long-term growth is its ability to maintain a strong order backlog while winning new government contracts simultaneously. During its most recent quarter, Q2 2024, L3Harris Technologies, Inc. (NYSE:LHX) landed new contracts worth $5 billion and increased its order backlog to more than $32 billion.
A strong order backlog can be a burden if management cannot drive revenue through it. L3Harris Technologies, Inc. (NYSE:LHX) has done well in keeping its top-line needle busy. During Q2 the company grew its revenue to $5.3 billion increasing 13% year-over-year on the back of Communication and Aerojet Rocketdyne segments.
The company’s profit margins are also growing, its operating income improved 19% during the year to reach $400 million, while margins grew 50 base points.
LHX is undervalued at current levels. It is trading at 18 times its forward earnings, a 10% discount to its sector. Moreover, its earnings are expected to grow 5.50% to reach $13.04. It was held by 40 hedge funds in Q2 2024, with total stakes worth $1.20 billion. Diamond Hill Capital is the top share holder of the company with a position worth $334.4.
Diamond Hill Mid Cap Strategy made the following comment about L3Harris Technologies, Inc. (NYSE:LHX) in its Q3 2023 investor letter:
“L3Harris Technologies, Inc. (NYSE:LHX) is a defense contractor focused primarily on communications, surveillance and electronic warfare. We anticipate the US’s defense budget will be better than expected over the next few years as the Defense Department focuses on preparing for peer-level threats — an area in which LHX’s capabilities fit nicely. We believe there is room for improvement in recent execution — particularly at recently acquired Aerojet Rocketdyne — and we think LHX’s new management team is well-qualified to improve results. We accordingly capitalized on a recent share-price decline to initiate a position at what we consider a compelling valuation.”
While we acknowledge the potential of L3Harris Technologies, Inc. (NYSE:LHX) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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