Inside L3Harris Technologies (LHX)’s C-HOBS Contract: What the $60M Air Force Award Means for Investors

On September 14, L3Harris Technologies, Inc. (NYSE:LHX) announced it had been awarded a $60 million contract by the U.S. Air Force to continue producing the C-HOBS (DSU-43/B Cockpit Selectable Height of Burst Sensors). These sensors enable aircrews to adjust the detonation altitude of munitions to match various targets and mission scenarios.

The production will occur at L3Harris' Cincinnati facility, and they will enhance radar-guided performance, add advanced sensing capabilities, and provide manual and cockpit-selectable burst heights. This contract is seen as evidence of the company's recurring business with the Air Force on precision-guidance electronics. Although small in size, such contracts provide strong, reliable order flow, which is essential for the bull thesis of the stock.

The contract is part of the Missile Solutions division, which has seen a 14% year-over-year revenue increase to $1.05 billion in Q2. The company is also negotiating over $20 billion in new contracts for this division. This adds to L3Harris' overall backlog, which hit a record $42 billion at the end of the second quarter. Despite the $60 million contract's potential, skeptics argue it does not significantly impact LHX's investment thesis.

The stock has experienced a 19% decline since the announcement during the Q2 earnings call on July 29, pushing the year-to-date slump to nearly 15%. Hedge fund ownership in L3Harris Technologies dropped 5% sequentially during the second quarter, with D E Shaw being the largest stakeholder. While the contract reinforces strong demand, the stock's elevated valuation and uncertainty surrounding the missile business IPO may hinder near-term sentiment. Investors may want to wait for clearer signals on the spinoff before allocating new funds.