L3Harris Technologies, Inc.LHXNYSE

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DCF Valuation

DCF Valuation Summary

Hold

Fair Value: $403.14 per share(market-calibrated)

+9.8%

Upside to Fair Value

Current

$367.20

Pure Model

$405.56

Fair Value

$403.14

Bull Case

$519.16

Bear Case

$316.55

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

1.78%

Calibrated Growth

2.18%

Fair value uses 85% model / 15% market-implied terminal growth. Pure model: $405.56.

What's Driving This Ratingfor LHX

✓

CapEx already efficient

CapEx at 1.72% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 10.94% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $4.7B (12.33% margin).

→

Moderate revenue growth

Analyst consensus projects 0.56% revenue growth, fading to 2.25% by Year 10. Revenue reaches $37.9B (vs $21.9B today).

✓

Model and market roughly agree

Market-implied terminal growth of 1.78% is close to the model's 2.25% (only 47bps apart). The DCF assumptions are well-aligned with how the market is pricing this stock.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 77.55% indicates efficient cash generation. FCF reaches $5.1B by Year 10 (13.52% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.64

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)7.38%

Cost of Debt

Pre-tax Cost of Debt4.52%

Tax Rate16.87%

After-tax Cost of Debt3.76%

Equity Weight (E/V)86.82%

Debt Weight (D/V)13.18%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (86.82% × 7.38%) + (13.18% × 3.76%)

= 6.90%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$22.0B	$25.2B	$29.6B	$34.0B	$37.9B
EBIT	$2.4B	$2.8B	$3.2B	$4.0B	$4.7B
Tax	$406M	$465M	$546M	$670M	$787M
NOPAT	$2.0B	$2.3B	$2.7B	$3.3B	$3.9B
+ Depreciation	$1.1B	$1.3B	$1.5B	$1.7B	$1.9B
- Capex	$377M	$432M	$508M	$583M	$649M
- Δ NWC	$7M	$96M	$135M	$111M	$45M
Free Cash Flow	$2.7B	$3.1B	$3.6B	$4.3B	$5.1B
Discount Factor	0.935	0.819	0.716	0.627	0.513
Present Value	$2.6B	$2.5B	$2.6B	$2.7B	$2.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.1B

Terminal Growth Rate2.25%

WACC6.90%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$112.5B

PV of Terminal Value$57.7B

Exit Multiple Method

Year 10 EBITDA$6.6B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$118.8B

PV of Terminal Value$60.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$26.1B

PV of Terminal Value$57.7B

Enterprise Value$83.8B

(-) Net Debt$9.4B

Equity Value$74.4B

Shares Outstanding187M

Price per Share$396.93

Exit Multiple Method

PV of Projected FCFs$26.1B

PV of Terminal Value$60.9B

Enterprise Value$87.0B

(-) Net Debt$9.4B

Equity Value$77.6B

Shares Outstanding187M

Price per Share$414.19

Pure Model Fair Value

$405.56

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
4.90%	$535.62	$574.16	$627.24	$704.96	$714.36
5.90%	$442.63	$463.73	$490.59	$525.98	$574.71
6.90%	$377.09	$389.94	$405.56	$424.94	$449.63
7.90%	$327.31	$335.72	$345.62	$357.44	$371.81
8.90%	$287.63	$293.42	$300.08	$307.82	$316.93

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$316.55

-13.8% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.80

Base Case

$405.56

10.4% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.64

Bull Case

$519.16

41.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.54

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth0.56%

Year 3 Revenue Growth7.61%

Year 5 Revenue Growth9.28%

Year 7 Revenue Growth6.47%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin10.94%

Terminal EBIT Margin13.00%

Tax Rate16.87%

Historical Capex / Rev1.72%

NWC / Revenue5.38%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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