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L3Harris Technologies (NYSE:LHX) was downgraded to Neutral from Buy with its price target cut to $250 from $285 by BofA analysts on Friday.
L3Harris shares are down over 6% the downgrade, which comes the day after Argus also downgraded the stock to Hold.
The analysts told investors in a note that the firm sees L3Harris as one of the defense companies most impacted by supply chain constraints. the company reported earnings at the end of October and the analysts said LHX management was able to provide some additional color regarding supply chain challenges on its earnings call, “highlighting that 25% of revenues are recognizable upon delivery as opposed to when costs are incurred.”
“These hurdles along with other macro headwinds have amounted to a ~$250mn negative impact to FY22 revenues, of which the company has been able to offset 70% of the associated higher costs. On component shortages, LHX continues to feel the brunt of the impact given its position as a systems integrator,” wrote the analysts.
He also pointed to Tactical Communications, one of the business units most impacted within the LHX portfolio, stating that LHX management noted that they can account for 97.5% of the necessary parts on its radios. “However, without all the necessary parts, the radios cannot deliver, and the revenue cannot be recognized (in some instances),” continued the analysts. “The company cited that out of 400 key suppliers, 10 remain on the watchlist (down from 30 in 1Q22).”
Despite Friday’s decline, L3Harris shares are up over 4% in 2022.
Still, BofA’s analysts explained that given the persistent supply chain challenges that have shown little sign of fading, they are downgrading the stock.
