L3Harris (LHX), Thales Defense to Compete for SINCGARS Deal

L3Harris Technologies, Inc. LHX has recently been offered an opportunity to compete against Thales Defense and Security for a $6.1-billion hybrid contract. The opportunity has been offered by the Army Contracting Command, Aberdeen Proving Ground, MD.

Per the terms, whichever company wins the contract will modernize Single Channel Ground and Airborne Radio System (SINCGARS) radios to align with the National Security Agency crypto modernization requirements.

The contract is expected to be completed by Mar 24, 2032.

Significance of SINCGARS & LHX

Intensifying geopolitical tensions worldwide have prompted countries to rapidly strengthen their defense system. The defense budget spike decided by Germany amid the Russia-Ukraine crisis is the latest example of that. To this end, it is imperative to mention that secured tactical communication forms an integral part of any country’s defense system and SINCGARS serve that purpose quite well.

SINCGARS is a combat radio system used by the U.S. Army and other U.S. allies to communicate securely in war zones. These radios handle both data and voice communications.

Impressively, L3Harris’ SINCGARS RT-1523 VHF radio is engineered to meet versatile mission needs — as a manpack to soldiers at dismount and on-the-move with the Vehicular Amplifier Adapter. It enhances warfighter safety and awareness with a Radio Based Combat Identification capability. In addition, combined with the available embedded SAASM GPS receiver option, it provides secure voice, data and position location reporting in a single system.

These features of L3Harris’ SINCGARS RT-1523 VHF radio must have encouraged the U.S. Army to consider the company as one of the co-competitors in the aforementioned hybrid contract.

Prospects

With cross-border and intra-border turmoil engulfing theglobal marketthese days, modern age tactical communication systems — particularly radios — enjoy a solid demand across the globe.

To this end, per a report by the Allied Market Research firm, the global defense tactical radio market was valued at $9.46 billion in 2020 and is projected to reach $26.59 billion by 2030, registering a CAGR of 10.5%.

No doubt, such an expanding market space offers ample growth opportunities for L3Harris, thereby bolstering its revenue prospects. If LHX successfully secures the aforementioned contract, we will witness further revenue growth for this stock.

Other defense majors that would reap the benefits of the growing defense tactical radio market include Lockheed Martin LMT, Northrop Grumman NOC and BAE Systems Plc BAESY.

Lockheed Martin’s Airborne and Maritime/Fixed Station Joint Tactical Radio System is a software-defined radio that is capable of providing Internet like connectivity and a secure infrastructure for joint forces to send data, imagery, voice, and video.

Lockheed boasts a long-term earnings growth rate of 5.7%. The Zacks Consensus Estimate for LMT’s 2022 earnings indicates an improvement of 18.3% from the 2021 reported figure.

Northrop Grumman provides the ALQ-251 radio frequency countermeasures system for the Special Operations Command AC/MC-130J tactical airlifters. The ALQ-251 will provide superior situational awareness and protection against electronic warfare systems and radar-guided weapons in contested and congested electromagnetic spectrum environments.

Northrop boasts a long-term earnings growth rate of 6.2%. The consensus estimate for NOC’s 2022 sales suggests an improvement of 2.6% from the 2021 reported figure.

In May 2020, BAE Systems completed the acquisition of Raytheon Technologies’ Airborne Tactical Radios business. As a leading provider of airborne tactical radio solutions, the Airborne Radios business designs, manufactures, and supplies mission-critical communication systems to the U.S. Department of Defense, allied governments, and large defense aircraft manufacturers.

BAE Systems boasts a long-term earnings growth rate of 5.3%. The Zacks Consensus Estimate for BAESY’s 2022 earnings implies an improvement of 22.3% from the 2021 reported figure.

Price Movement

In the past year, shares of L3Harris have gained 27.1% against the industry’s 33.4% decline.

Image Source: Zacks Investment Research

Zacks Rank

L3Harris currently carries a Zacks #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.