L3Harris Technologies (LHX): A Top Defense Pick Riding the Pentagon’s Spending Surge

L3Harris Technologies (NYSE:LHX) has emerged as a standout play in Goldman Sachs’ 2025 defense portfolio, recently upgraded to Buy with a price target of $263—a sharp reversal from its prior Sell rating. The upgrade reflects the firm’s confidence in L3Harris’ ability to capitalize on a defense spending boom, geopolitical tensions, and its own operational resilience. But what makes L3Harris a top pick among peers like Northrop Grumman (NOC) and Raytheon Technologies (RTX)? Let’s break down the case.

Why Goldman Sachs Upgraded L3Harris to Buy

Goldman’s April 11 upgrade cited three core strengths:
1. Agility in Defense Shifts: L3Harris’ business model thrives on adapting to evolving priorities. For instance, its contracts for Patriot missile seekers and submarine systems align with the Pentagon’s focus on modernizing missile defense and undersea warfare.
2. Financial Fortitude: Despite a $480 million revenue dip in 2025 due to the sale of its aviation unit, L3Harris reported a 25.9% gross margin in 2024—well above the sector average—and a 10% revenue growth year-over-year.
3. Valuation Discount: At its April 2025 price of ~$218/share, L3Harris trades at a 13.5x forward P/E ratio, significantly cheaper than peers like RTX (16.8x) and NOC (15.2x).

The Defense Sector Tailwinds Fueling L3Harris

1. U.S. Defense Spending Surge: President Trump’s proposed $1 trillion fiscal 2026 defense budget includes record allocations for shipbuilding, space systems, and missile defense—areas where L3Harris is a leader. Its work on proliferated low-Earth orbit satellites (part of a $13B Pentagon contract) positions it to benefit from the military’s space modernization push.
2. European Defense Boom: Goldman projects EU military spending to rise from 1.8% of GDP (2024) to 2.4% by 2027, with every €100 in spending boosting GDP by ~€50. L3Harris’ global footprint (operations in over 100 countries) gives it access to this growth.
3. International Demand: Vietnam’s pledge to buy U.S. weapons to reduce its trade imbalance, plus India’s potential F-35 procurement, create export tailwinds.

L3Harris vs. the Competition

While L3Harris isn’t the largest defense contractor, its diversified portfolio—spanning air, land, sea, space, and cyber domains—gives it an edge over single-platform peers. Compare this to Northrop Grumman’s reliance on the B-21 bomber (which faces production delays) or RTX’s focus on F-35 jets and Patriot missiles.

Risks and Challenges

1. Near-Term Tariff Pressures: Though Vietnam’s commitment to U.S. weapons eases some trade fears, broader Sino-U.S. tariff disputes remain unresolved.
2. Supply Chain Hurdles: L3Harris cited cost overruns in its Q1 2025 results, with full-year EPS guidance lowered to >$25/share (vs. Wall Street’s $28 estimate).
3. AI Stock Competition: While defense stocks are strong, Goldman’s analysts note that AI stocks—with faster growth profiles—could steal investor attention.

Conclusion: L3Harris as a Buy with a Long-Term Horizon

L3Harris is a compelling investment for those willing to look past short-term volatility. With a $263 price target implying ~21% upside from April 2025 levels, and a 48,000-employee workforce delivering 10% annual revenue growth, the stock is well-positioned to benefit from:
- The $1 trillion U.S. defense budget, including $13B for space systems.
- A 2.4% EU GDP defense spend by 2027, amplifying international sales.
- Institutional backing: Goldman holds $497 million in L3Harris, and fund sentiment remains bullish with a 0.59 put/call ratio.

While risks like supply chain delays exist, L3Harris’ diversified exposure to high-priority defense programs, coupled with its valuation discount, makes it a top pick in Goldman’s portfolio. For investors, this is a stock to hold for the next 12–18 months as defense spending trends solidify—a bet on both national security priorities and the resilience of U.S. defense contractors.