Trump's War Department invests $1 billion to get pre-IPO shares of this rocket-motor maker

By Tomi Kilgore

L3Harris's stock heads for another record close after the defense contractor partners with the U.S. government to build missile components

L3Harris's stock was headed for a fourth straight record close after the Trump administration made a $1 billion investment in the maker of missile motors.

Shares of L3Harris Technologies climbed further into record territory Tuesday after the defense contractor became the latest company in which the U.S. government has taken an ownership stake.

A $1 billion investment by the U.S. Defense Department in L3Harris's (LHX) recently created missile-solutions business comes ahead of the company's plan to pursue an initial public offering of that business. The investment was made through convertible preferred securities that will automatically convert into common stock in an IPO, which is targeted to take place in the second half of 2026.

Pre-IPO shares are usually reserved for company insiders and larger institutional investors, with retail investors often shut out until the stock starts trading on the public markets.

The government investment is part of a "partnership" between L3Harris and the Defense Department (known under the Trump administration as the War Department) to boost capacity to build solid rocket motors used in missiles for the U.S. and its allies.

L3Harris's stock rose 0.4% in recent afternoon trading Tuesday toward a fourth straight record close, but pared earlier intraday gains of as much as 6.1%. The stock has run up 16.5% so far in January.

The Trump administration has been investing in companies that make products deemed vital to national security, such as rare-earth miners MP Materials (MP) and Trilogy Metals (TMQ), chip maker Intel (INTC) and steel producer U.S. Steel, which was later acquired by Japan's Nippon Steel (NPSCY).

L3Harris said the investment will support the expansion of capacity for the U.S. military's missile programs, as the newly formed missile-solutions business helps build out what the Defense Department is calling the "Arsenal of Freedom."

"Recent Trump administration actions have placed renewed emphasis on strengthening the defense industrial base and reinvigorating competition following a 30-year wave of consolidation," said L3Harris Chief Executive Christopher Kubasik.

Company executives said at L3Harris' investor update call, according to a FactSet transcript, that the company will own a majority of the new company after it goes public. The government, while being an "anchor investor," only has an economic investment in the business, with no board seats.

"[T]he Department of War has only an economic investment, they have no board seats," said Chairman Chris Kubasik. "They have no influence with management or the day-to-day operations."

Analyst Robert Stallard ad Vertical Research Partners believes the company's move is not only innovative and shareholder friendly, it should meet the Trump administration's push for defense contractors to make stuff quicker. But there's a catch.

"What we don't know is whether the [Defense Department] actually has the authority to make this kind of investment, and it would need congressional approval," Stallard wrote in a note to clients. "Either way, we see this as a positive development for [L3Harris], and we could see otherU.S. defense contractors looking to pursue such an approach."

The defense sector has been on a tear this month, given geopolitical concerns and with President Donald Trump saying he wants to increase U.S. military spending by 50% to $1.5 trillion. The iShares U.S. Aerospace exchange-traded fund ITA has rallied 11% month to date toward a third straight record close, with 28 of its 41 equity components reaching 52-week highs in January.

Over the past 12 months, L3Harris shares have soared 59.9%, while the iShares defense ETF has rallied 63% and the S&P 500 SPX has advanced 19.3%.

-Tomi Kilgore

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01-13-26 1342ET