Recent history suggests that the upcoming initial public offering (IPO) of L3 Harris’ (LHX) Missile Solutions unit will generate huge profits for investors,. Meanwhile, worries about the defense contractor’s 2026 earnings per share guidance appear to be overdone.
Consequently, I believe that all investors should consider buying LHX stock on its recent weakness at this point.
The Upcoming Missile Solutions IPO
In the second half of this year, L3 Harris intends to launch an IPO of its Missile Solutions unit that specializes in manufacturing motor technologies utilized in missiles, including the THAAD and Patriot missile-defense systems. In conjunction with the deal, the U.S. government will invest $1 billion in the entity. L3 Harris will retain a majority stake in the new company.
L3 does not appear to have stated that its current shareholders will receive stakes in Missile Solutions. However, in recent years investors in the companies that spin off businesses have usually received shares of these units. And the stocks of these spun-off units have generally generated huge returns.
GE Vernova (GEV), Grail (GRAL), and Sandisk (SNDK), for example, have all been tremendously profitable for their shareholders after they were spun off from their parent companies. Meanwhile, Viasat (VSAT) stock has rallied enormously partly because it is considering spinning off one of its businesses.
Additionally, L3 Harris’ Missile Solutions unit is well-positioned to benefit from the huge demand from the Pentagon for missile-defense systems. Indeed, Washington would not be investing $1 billion in L3’s business unless it was eager to help the entity ramp up its production of engine technology so that they can be incorporated in the agency’s rapidly growing arsenal of missile-defense systems and conventional missiles. Or as CNBC put it, “The deal all but guarantees a steady flow of business for the new unit.”
Given the recent history of spun-off entities’ stocks generating tremendous returns and Missile Solutions’ bright future, there a high likelihood that its shares will outperform the market by wide margins in 2026 and 2027. And since L3 will hold a majority stake in Missle Solutions’ stock and L3’s shareholders will probably receive shares of Missile Solutions, the upcoming IPO makes LHX stock very attractive now.
Overdone Worries About LHX’s Guidance
LHX stock has fallen significantly after the firm delivered its fourth-quarter financial results on January 29. Investors were concerned because the defense giant provided 2026 EPS guidance, excluding certain items, of $11.30 to $11.50, well below analysts’ average estimate of $12.44.
However, speaking on the company’s earnings conference call, CFO Ken Bedingfield said “Our guidance reflects appropriate risk posture early in the year.” That statement appears to indicate that the company provided conservative guidance to account for the possibility of a protracted government shutdown early in the year. Since Congress has approved the fiscal 2026 defense budget, that potential negative catalyst is no longer an issue.
What’s more, CEO Chris Kubasik stated on the call that the company “ended the year with a record order book and strong demand signals from our customers,” adding that “capacity is now the most important capability.” The latter statements suggest that the demand for L3’s products are very strong. Consequently, I believe that it’s poised to deliver very impressive financial results this year.
Valuation and the Bottom Line on LHX Stock
L3 is changing hands at a forward price-earnings ratio of 28.25 times, while analysts on average expect its EPS to climb to $11.78 in 2026 versus $10.73 in 2025. Moreover, as I noted, the IPO of the company’s Missile Solutions unit should prove to be very profitable for its investors.
Given the company’s strong ,expected growth and the upcoming IPO, the shares appear to be undervalued and very attractive.
*This article is intended to be informational only; it is not financial advice
