We’ve just celebrated the one-year anniversary of one of the largest mergers ever to hit the defense industry.

As someone who has been around military technology since high school, I was and remain a big fan of this move.

And it’s not just because the combined firm had first-quarter sales that were up by a stunning 168%, though I believe it does prove the value of this move.

The merger created a firm with more than $16 billion in yearly sales and a $35 billion market cap.

Along the way, the linkup cemented the firm status’s an electronics-centric leader with a strong moat and that’s in a field vital to America’s security.

Mordor Intelligence projects the sector where this firm excels is going to grow 14% between now and 2024. And that’s on top of a current base worth $124 billion.

Over the past five years, the stock has nearly doubled the overall market’s return.

And today, I’m going to show you why I believe there’s still so much upside ahead…

A Rising Contractor

Now then, the company I have in mind is focused on a field at the heart of the nation’s security, military, and aerospace efforts. It’s known as C4ISR.

That stands for Command, Control, Computing, Communications, Intelligence, Surveillance, and Reconnaissance. And it’s one of the most powerful trends in play today.

L3Harris Technologies Inc. (LHX) has been a key player in this space for decades. From secure walkie talkies for forward-deployed troops to satellite systems to track hypersonic weapons in space, the company has been integral in keeping troops, astronauts, and our country safe, no matter how challenging that may be.

On June 29, 2018, L3 Technologies completed its merger with Harris Corp. L3 began in 1997 by acquiring some divisions spun off after Lockheed Corporation and Martin Marietta merged in 1993 to form Lockheed Martin Corp. (LMT).

Over the years, L3 continued to grow its defense and intelligence business, ultimately becoming one of the top 10 defense contractors.

Harris Corporation has been around in one form or another since 1895. No, that’s not a typo – 1895, not 1985.

But its early days were focused on developing new technologies. It got into radio broadcasting technology in the 1950s. It was in microwave transmission technology by ’59. And by ’67 it was integrally involved in the space race, developing integrated circuits and modems.

By the 2000s, Harris was a key member of the select group of companies the military, aerospace, and intel services used to develop key equipment.

Remember, when you build for these sectors, you need to be secure, reliable, and durable. If you can do that, the rewards are long-term business through good and bad times.

Plus, since L3Harris is big enough to be a lead contractor now, it can also use smaller firms as R&D accelerators.

21st Century Warfighting

One of its big wins post-9/11 was its cell-site simulators. They pretend to be legitimate cell phone towers but steal the signals for intelligence agencies to capture suspect communications and also triangulate locations.

Harris and L3 were also significant players in developing the networked battlefield and building secure mobile networks for troops to manage drones for C4ISR as well as receive real-time intel.

Make no mistake. LHX has stayed at the forefront of emerging defense tech trends.

Today, that includes hypersonic weapons – ours, but also China’s and Russia’s. These weapons move at Mach 5, or about 3836 mph. That cuts counter-offensive reaction times considerably.

Along with the newly minted US Space Force, the government is also developing programs to deal with these next-gen threats out there.

The Hypersonic and Ballistic Tracking Space Sensor is one such project with a current budget of $108 million budget. The Pentagon is looking to up that to $137 million next year. And the Missile Defense Agency is also looking for $207 million in hypersonic missile defense equipment.

But L3Harris doesn’t just have its head in the clouds. It also has products where the boots are on the ground.

In mid-July, it secured a contract to supply the recently formed 915th Cyber Warfare Battalion and it just won a $136 million contract for submarine sensors.

L3Harris also just won a $900 million Air Force tech training contract. And in June, the British Royal Navy hired the company to upgrade some of its autonomous underwater vehicles.

In other words, this merger yielded a lot of synergies. But there are still more ahead.

The Moment To Buy

L3Harris recently set a goal to divest some of the extraneous assets of both companies. Right now, the target totals roughly $1.5 billion.

For this year’s first quarter, LHX had a 168% sales increase, more than five times higher than its three-year average. It also had a 21% earnings increase, off a bit from the 29% three-year average,

Currently, LHX is out of favor based on technical indicators. And that gives us a buying opportunity for a stock with great long-term potential.

Over the past five years, the stock has gained 97.3%. That’s right at 88% better than the S&P 500’s returns over the period, not counting the stock’s 2.1% dividend.

Add it all up and you can see this a great military technology stock to own for the long haul.

After all, LHX can help the nation remain secure – and keep your portfolio safe.

Cheers and good investing,

— Michael A. Robinson

Source: Strategic Tech Investor