L3HARRIS TECHNOLOGIES, INC. /DE/ LHX

L3Harris is actively reshaping its portfolio, evidenced by the announced sale of a majority stake in its civil Space Propulsion and Power business to AE Industrial Partners. Concurrently, the company is reorganizing its segments from four to three and plans an initial public offering (IPO) for its Missile Solutions business in the second half of 2026. This strategic move, which includes a $1 billion preferred security investment from the Department of War (DoW), aims to create a $4 billion-plus revenue, majority-owned public company focused on critical propulsion systems and other missile solutions, while sharpening L3Harris's focus on core defense priorities and unlocking shareholder value.

The company emphasized its commitment to operational agility and execution, highlighting improvements in on-time delivery and investments in production capacity. The LHX NeXt program, designed to streamline the business and reduce costs, successfully exceeded its $1 billion savings commitment a full year ahead of schedule. Management noted that the principles and philosophy of continuous improvement derived from LHX NeXt are now embedded into the company's day-to-day operations, contributing to ongoing efficiency and potential for higher margins.

L3Harris concluded FY25 with a record order book exceeding $38 billion and a robust overall book-to-bill ratio of 1.3x, signaling strong demand. Significant wins included a landmark $2.2 billion award from South Korea for next-generation airborne early warning missionized business jets, an $850 million SDA contract for 18 Tranche 3 tracking layer satellites, and over $400 million in international weather satellite and tactical communications orders. An initial order of over $700 million for multi-aircraft special mission business jets is also expected in Q1 FY26.

The company provided strong financial guidance for FY26, projecting revenue of $23 billion to $23.5 billion (7% organic growth at midpoint), low 16% segment operating margin, and $3 billion in free cash flow. This guidance, which exceeds ambitious targets set at the December 2023 Investor Day, will serve as the foundation for a new 2028 financial framework to be unveiled at the upcoming Investor Day in February. The transition to GAAP diluted EPS, projected at $11.30 to $11.50, reflects the completion of the LHX NeXt program implementation.

L3Harris highlighted its leadership in space-based missile defense, having secured contracts across all four tranches of the Space Development Agency (SDA) tracking layer. The company is making substantial investments in facilities in Fort Wayne and Palm Bay, totaling over 200,000 square feet, to rapidly scale satellite production. This capacity, combined with its proven track record, positions L3Harris favorably for future awards under the $25 billion Golden Dome initiative, including the highly anticipated HBTSS award, emphasizing speed and scale in meeting national security needs.

Management expressed confidence in its ability to manage supply chain and personnel demands despite projected rapid growth. While acknowledging the need for second and third-tier suppliers to scale, L3Harris is actively fostering partnerships with key suppliers, particularly in the Missile Solutions segment, to ensure capacity. The company also noted strong recruiting efforts and the use of AI and robotics to enhance engineering and manufacturing efficiency, mitigating potential workforce constraints and enabling it to meet increased production targets.