L3Harris Technologies Inc. (NYSE:LHX) received a notable upgrade on Thursday from Wolfe Research analyst Myles Walton, who moved the stock from Peer Perform to Outperform and set a new price target of $300. The target suggests a potential upside of nearly 24%.

What To Know: The Wolfe Research analyst cited improving sales growth, margin expansion and free cash flow per share as key drivers for the optimism around L3Harris.

After lagging behind competitors over the past year, the aerospace and defense company is positioned for an upward shift in sales growth, with the potential to converge with industry peers Lockheed Martin Inc. (NYSE:LMT) and Northrop Grumman Inc. (NYSE:NOC) by 2025 or 2026, Walton said, calling it a "turning point" for L3Harris.

The analyst expects company sales to grow by 3% to 5% in 2025 and 5% in 2026, driven by strong performance in its core businesses, particularly in its Communication Systems, Space and Airborne Systems and Aerojet Rocketdyne divisions.

Walton also noted that the company's margins are already 400 basis points higher than its peers. The analyst further pointed out that management raised its margin target to over 16% by 2026, citing ongoing cost-cutting initiatives, including a 5% workforce reduction and facility consolidation. Walton expects this margin growth to lead to robust free cash flow per share expansion in the mid-teens range in 2026.

As L3Harris' performance continues to improve, the valuation gap with larger defense companies is likely to narrow, the analyst said. His price target is based on a 15% valuation discount relative to the multiples of Lockheed Martin and Northrop Grumman. Lockheed has a price-to-earnings multiple of approximately 21 and Northrop's multiple is around 19.5. L3Harris is trading around 17 times forward earnings, according to data from Benzinga Pro.

Despite the positive outlook, Walton acknowledged that there are risks. The company has trailed peers in growth and continues to deal with some uncertainties related to Aerojet Rocketdyne. However, the analyst believes these concerns are beginning to ease and L3Harris is positioned to address investor concerns moving forward through a renewed focus on growth and margin expansion.

LHX Price Action: L3Harris Technologies shares were down by 0.15% at $241.85 at the time of writing, according to Benzinga Pro.

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