The stock of L3Harris Technologies (NYSE:LHX, 30-year Financials) is estimated to be modestly undervalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $224.25 per share and the market cap of $46 billion, L3Harris Technologies stock gives every indication of being modestly undervalued. GF Value for L3Harris Technologies is shown in the chart below.
Because L3Harris Technologies is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth, which averaged 21.1% over the past three years and is estimated to grow 3.25% annually over the next three to five years.
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Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. L3Harris Technologies has a cash-to-debt ratio of 0.13, which which ranks worse than 84% of the companies in Aerospace & Defense industry. The overall financial strength of L3Harris Technologies is 5 out of 10, which indicates that the financial strength of L3Harris Technologies is fair. This is the debt and cash of L3Harris Technologies over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. L3Harris Technologies has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $18.1 billion and earnings of $6.44 a share. Its operating margin is 10.92%, which ranks better than 74% of the companies in Aerospace & Defense industry. Overall, GuruFocus ranks the profitability of L3Harris Technologies at 8 out of 10, which indicates strong profitability. This is the revenue and net income of L3Harris Technologies over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of L3Harris Technologies is 21.1%, which ranks better than 89% of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth is 3.3%, which ranks in the middle range of the companies in Aerospace & Defense industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, L3Harris Technologies’s return on invested capital is 4.93, and its cost of capital is 6.11. The historical ROIC vs WACC comparison of L3Harris Technologies is shown below:
In summary, L3Harris Technologies (NYSE:LHX, 30-year Financials) stock is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks in the middle range of the companies in Aerospace & Defense industry. To learn more about L3Harris Technologies stock, you can check out its 30-year Financials here.
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