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Bernstein has also adjusted its target price for the company, lowering it to $210 from the previous target of $239. In their client note, the analysts consider L3Harris to be a “show me” story.
“We still see strong top line growth for LHX, supported by rising backlogs. The problem, however, remains on margins with supply chain issues, inflation on fixed-price contracts, and execution,” the analysts said in a downgrade note.
These challenges, combined with the financial resources allocated for the Aerojet Rocketdyne deal, have resulted in the company’s stock not performing as well as expected since the third quarter of 2022.
Although L3Harris is currently priced lower and has promising long-term potential, “we see little urgency to move into the stock now as it works through the next 12-18 months,” the analysts added.
“We would not be short the stock at today’s valuation. But, we believe the company has significant work ahead on margins, including AJRD and TDL integration, to deliver full value from its growth opportunities.”
LHX shares fell 0.7% in pre-open trading. The stock is down 14.3% year-to-date.
