L3Harris rallies on earnings beat, strong 2026 outlook
Defense contractor exceeds expectations with record $27.5B backlog as sector surges on global military spending
L3Harris Technologies surged in Thursday trading after the defense contractor reported quarterly results that topped analyst expectations and issued optimistic 2026 guidance, joining a broader rally in defense stocks driven by increasing global military expenditures.
The Melbourne, Florida-based company reported fourth-quarter non-GAAP earnings per share of $2.86, surpassing the consensus estimate of $2.76 by 4% and beating the higher end of some analyst projections at $2.77. Quarterly revenue reached $5.6 billion, slightly below the $5.77 billion consensus but representing a $125 million increase from the same period a year earlier, according to earnings reports released January 29, 2026.
Full-year 2025 results revealed what Chief Executive Officer Christopher Kubasik called "a clear inflection point." The company generated record orders of $27.5 billion, achieving a book-to-bill ratio of 1.3 times, indicating strong demand visibility. Organic revenue grew 5% for the year, while adjusted free cash flow jumped 21% to $2.81 billion. Total revenue for fiscal 2025 reached $21.9 billion.
L3Harris initiated 2026 guidance projecting GAAP earnings per share of $11.30 to $11.50, with revenue expected to reach $23 billion representing 6% growth from 2025. The company forecasts free cash flow of $3 billion and anticipates 5-6% organic growth driven by increased volume from existing programs and new contract awards. Management plans to provide further financial details at its Investor Day on February 25, 2026.
The strong results and outlook come amid a robust environment for defense contractors, with the sector experiencing significant momentum in January 2026. The U.S. defense budget proposal for fiscal year 2027 totals $1.5 trillion, while ongoing geopolitical conflicts have accelerated military spending globally. Major defense peers including General Dynamics and RTX Corporation have also reported strong 2025 results and issued optimistic 2026 guidance.
General Dynamics ended 2025 with a record backlog of $118 billion, up 30% year-over-year, while projecting 2026 revenue between $54.3 billion and $54.8 billion. RTX reported a record backlog of $268 billion and expects 2026 adjusted sales between $92 billion and $93 billion.
Analysts have responded favorably to L3Harris's performance and positioning. Morgan Stanley upgraded the stock to "Overweight," citing the attractiveness of the aerospace and defense sector where demand is outstripping supply growth and noting that current valuations may not fully reflect increases in the U.S. defense budget. Citi initiated coverage with a "Buy" rating, highlighting significant "megatrends" across aerospace and defense segments.
Strategically, L3Harris completed a major reorganization effective January 5, 2026, consolidating four business segments into three: Space & Mission Systems, Communications & Spectrum Dominance, and Missile Solutions. The restructuring aims to align the company's portfolio with future warfare requirements. Additionally, the company is divesting a 65% stake in its Space Propulsion and Power Systems business and plans a public spin-off of its missile solutions division, supported by a $1 billion investment from the U.S. Department of Defense.
The acquisition of Aerojet Rocketdyne is performing well, with the solid rocket motor business showing sustained double-digit growth, positioning L3Harris to lead in next-generation missile defense architecture. Leadership views the defense industry as entering "a new era defined by urgency, speed, and mission focus," with the company aiming to deliver resilient and rapidly deployable solutions.
L3Harris shares have gained more than 90% over the past 12 months, currently trading around $360, just below the 52-week high of $362.42 reached in recent weeks. The stock carries an analyst consensus price target of $364, with 16 analysts rating it a buy or strong buy and 6 recommending hold, according to market data.