L3Harris Shares Surge on $1 Billion Defense Department Investment

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A strategic $1 billion investment from the U.S. Department of Defense into a core division of defense contractor L3Harris has ignited significant investor interest and driven its stock price higher. The move, coupled with a planned public offering for the unit and other portfolio actions, is reshaping the company's strategic focus.

The financial markets responded swiftly to the strategic announcements. Following the news, L3Harris shares posted substantial gains. This positive reaction prompted several leading analyst firms to revise their price targets upward, reflecting heightened confidence in the company's trajectory.

Bernstein reaffirmed its "Outperform" rating while lifting its target from $369 to $398. TD Cowen increased its target to $370 from $320, maintaining a "Buy" recommendation. Similarly, RBC Capital Markets raised its target to $360 from $315, with a "Sector Perform" rating. This collective optimism is underpinned by expectations of sustained high defense spending and L3Harris's entrenched position in critical technologies like propulsion systems and communication equipment.

Pentagon's Strategic Capital Injection

At the heart of the development is L3Harris's "Missile Solutions" division, a manufacturer of solid rocket motors for key defense systems including Tomahawk cruise missiles and Patriot air defense missiles. The Pentagon has structured a unique $1 billion investment in the form of a convertible preferred stock in this unit. This investment is designed to automatically convert into common stock once L3Harris completes an initial public offering (IPO) for the division, which is slated for the second half of 2026. Even after the IPO, L3Harris will retain majority control. This initiative directly supports national priorities to accelerate munitions production and expand capacity for critical weapon components.

Ongoing Portfolio Reshaping

In parallel with the missile unit plans, L3Harris is advancing a broader portfolio transformation. The company has reached an agreement to sell a 60% stake in its Space Propulsion and Power Systems business to private equity firm AE Industrial Partners for $507 million. L3Harris would maintain a 40% minority interest in this entity. This transaction highlights the company's continued effort to streamline its operations and sharpen its strategic focus on core defense segments.

Investors are now looking ahead to the release of Q4 2025 financial results on January 29, 2026, for further insights into the company's financial health and the execution of its stated strategy. The unconventional structure of the Pentagon's investment may also prompt regulatory scrutiny in the coming months.