L3Harris Technologies (LHX) and the Geopolitical Defense Boom: A Strategic Buy for 2026?

The defense sector is undergoing a seismic shift, driven by escalating geopolitical tensions, surging global military budgets, and a technological arms race. At the center of this transformation is L3Harris Technologies (LHX), a defense contractor poised to capitalize on a $3.6 trillion global defense spending boom by 2030. With a 7% year-over-year revenue increase in Q3 2025, a raised 2025 revenue guidance to $22 billion, and a strategic pivot toward high-growth segments like space and AI, L3Harris is emerging as a compelling case study in defense sector resilience and innovation. This analysis evaluates whether L3Harris is a strategic buy for 2026, considering its valuation, sector momentum, and geopolitical tailwinds.

Valuation: A Discount to Peers Amid Strong Fundamentals

L3Harris trades at a price-to-earnings (P/E) ratio of 30.1x as of December 2025, significantly below the Aerospace and Defense industry average of 37.4x and its peer group average of 33.6x. This discount reflects a valuation that appears rationalized relative to its fundamentals. The company's last 12 months (LTM) EBITDA of $4.0 billion supports an EV/EBITDA multiple of 17.8x, a metric that aligns with the sector's average while underscoring L3Harris's operational efficiency.

The company's financial performance further justifies its valuation. Q3 2025 results highlighted a 10% organic revenue growth rate, driven by new program ramps and international deliveries, alongside a 10% year-over-year increase in non-GAAP diluted EPS to $2.70. These metrics, combined with a raised 2025 revenue guidance to $22 billion and adjusted EPS expectations of $10.50–$10.70, suggest a business model that balances growth with disciplined cost management. Simply Wall St's Fair Ratio framework estimates a "fair" P/E of 30.0x for L3Harris, implying its current valuation is in line with its earnings trajectory and risk profile.

Sector Momentum: Defense ETFs and Global Spending Trends

The defense sector's momentum is fueled by a perfect storm of geopolitical and economic factors. U.S. defense spending is projected to surge from $901 billion in 2026 to $1.5 trillion in 2027, while European nations are accelerating modernization programs in response to regional instability. This spending surge has translated into robust performance for defense ETFs, with the Global X Defense & Aerospace ETF (DEF) gaining 74% in 2025, reflecting investor optimism.

Global defense spending is expected to exceed $3.6 trillion by 2030, driven by demand for advanced technologies such as space-based systems, electronic warfare, and AI-enhanced logistics. L3Harris is uniquely positioned to benefit from these trends. Its recent $2.2 billion Korea Airborne Early Warning & Control contract, coupled with its leadership in Next Generation Jammer programs, underscores its role in addressing critical gaps in modern warfare.

Geopolitical Tailwinds: Strategic Contracts and Budgetary Tailwinds

Geopolitical tensions are the primary catalyst for L3Harris's growth. The company's Q3 2025 results highlighted increased international deliveries for resilient communications and data-link equipment, a trend accelerated by conflicts in the Middle East and Eastern Europe. Additionally, L3Harris's expansion into munitions and space-segments projected to grow at double-digit rates-positions it to capture a larger share of defense budgets.

The U.S. government's focus on domestic manufacturing has further amplified L3Harris's opportunities. The company has invested $1.25 billion to expand U.S. manufacturing capabilities and acquired Aerojet Rocketdyne, a key supplier of propulsion systems for defense and space applications. These moves align with the Biden administration's push for supply chain resilience, ensuring L3Harris remains a critical partner in national security.

Strategic Positioning: Innovation and Consolidation

L3Harris's growth strategy is anchored in selective acquisitions, technological innovation, and operational excellence. Its partnership with Palantir Technologies to integrate AI and machine learning into defense solutions exemplifies its commitment to staying ahead of the curve. Meanwhile, the acquisition of Viasat's Link 16 product line strengthens its position in secure communications, a cornerstone of modern military operations.

The company's focus on "operational excellence" and execution- highlighted by CEO Christopher Kubasik-ensures that its investments translate into sustainable profitability. This approach contrasts with the sector's recent trend of speculative valuations, as seen in Rheinmetall's 97.1x P/E multiple, which reflects heightened expectations for future earnings. L3Harris's disciplined capital allocation and emphasis on core programs make it a more conservative bet in a sector prone to volatility.

Conclusion: A Strategic Buy for 2026?

L3Harris Technologies is a prime example of a defense contractor leveraging geopolitical tailwinds, sector momentum, and strategic innovation to drive long-term value. Its valuation, while modest compared to peers, is supported by robust earnings growth and a clear path to capitalizing on the $3.6 trillion global defense spending boom. With a 2025 revenue guidance of $22 billion and a strategic focus on high-growth areas like space and AI, L3Harris is well-positioned to outperform in 2026.

For investors seeking exposure to the defense sector's next phase of growth, L3Harris offers a compelling combination of defensive qualities (stable cash flows, government contracts) and offensive potential (technological leadership, geopolitical tailwinds). While risks such as budget delays or geopolitical de-escalation exist, the company's diversified portfolio and strong balance sheet mitigate these concerns. In a world where defense spending is no longer a cyclical trend but a structural shift, L3Harris is a strategic buy for 2026.