Raymond James analyst Brian Gesuale upgraded L3Harris Technologies Inc (NYSE:LHX) to Outperform from Market Perform and established a price target of $210.

The analyst is bullish on the company's improved fundamentals as it is expected to go from under-earning and over-levered to normalization in both aspects in the coming quarters.

Also, margins appear to bottom out as EAC adjustment headwinds have peaked, and NeXt generates savings of $500 million and >$2 of incremental EPS in FY25, says the analyst. 

The analyst expects this to drive EBITDA margins to >18% from <16% over the next two years. Notably, he projects LHX to achieve adjusted EBIT margins of 14.7% in FY23 (130bps lower than the 2021 rate of 16%).

The analyst expects non-core asset sales and FCF of $2.5 billion in FY24 and FY25 to reduce leverage to 2.7x and ~2x (with asset sales) by the end of FY24 and FY25, respectively.

For 2024, the analyst sees adjusted EBIT expansion of 40bps to 15.1% aided by expected improvement in mix, scale, and continued improvement in EAC impacts. 

The analyst revised estimates for adjusted EPS to $12.29 (from $12.42) in FY23 and $13.33 (from $13.85) in FY24.

For FY25, the analyst sees adjusted EBITDA of $4.063 billion and adjusted EPS of $14.71. 

Last week, L3Harris reported Q3 FY23 adjusted EPS of $3.19, beating the consensus of $3.03, and revenue of $4.915 billion surpassed the street view of $4.76 billion. 

Price Action: LHX shares are trading higher by 2.58% at $175.34 on the last check Monday.

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