Supply-Chain Issues Constrained L3Harris' Q3 Sales, but Bookings Remain Strong

Narrow-moat-rated L3Harris reported a strong third quarter as sales were limited by supply chain issues. That noted, the shorter-cycle prime is showing its portfolio is well aligned in the decelerating funding environment, as the organic backlog of about $21 billion is up 9% from last year and 4% year to date. Many peer defense contractors have had declining backlogs in 2021. Revenue of $4.2 billion missed FactSet consensus by 6.6% but non-GAAP EPS of $3.21 beat FactSet consensus by 0.8%. After incorporating third-quarter earnings into our model, we are increasing our fair value for L3Harris to $215 per share from $208 as we increase our medium-term margin outlook as L3Harris’ cost synergies are tracking ahead of our previous outlook, though this increase is partially offset by lower 2021 revenue.