Defense Contracts & FCF – Looking at L3Harris Corporation (LHX) and Honeywell (HON)

L3Harris (LHX, referred to in the data by its old name Harris Corporation) federal action obligations have spiked from a steady $400M-$500M since 2021 to $1.21B in 2025, but that doesn’t seem to be reflected in its price. Is the market missing something?

In my zeal to become an alt-data provider and ontologist extraordinaire, I decided to have a look at many gigabytes of USA spend data, government contracts and grants, to see whether there were insights that aren't easy to come by. The process of cleaning and understanding $4T of contract data since 2020 is challenging to say the least. But I’m finding too many nuggets to write about. If you want to see more results of this sort of alt-data analysis, please subscribe, or reach out to me if have other ideas for interesting sources of alt data.

The first thing I do when understanding a dataset of vast scope is to try to pick out the outliers and see if they tell me anything. There are certainly a couple that stick out when looking at % of spend by industry classification (NAICS). In the total federal action obligations, I see a huge amount of “Facilities Support Services” in February 2026. In total base and options value I see another large amount for “Telecommunications Resellers”.

If the government is deciding to throw billions of dollars more into certain areas, I kind of want to know who will reap the benefits. Now we look at those two categories for the major players. Here are the top ten recipients by name for each of those NAICS descriptions in 2025-2026.

I’m looking for big outliers as well as potentially public companies. Two stand out that I know: Honeywell (HON) and Harris Corporation (now L3Harris, LHX). Now it’s a question of looking at their federal contract dollars over time. Both show some growth, though LHX is showing major growth from Q2 of 2025 until Q1 of 2026. That seems like enough ($300M+ per quarter) to have a material impact on LHX’s earnings.

The actual free cash flow numbers also seem related to future federal contracts obligations, as you’d expect. Based on that massive spike in 2025 obligations, you would expect LHX to have a lot of true free cash flow growth in 2026, which the market doesn’t seem to be pricing in. On the other hand, these obligations make up maybe 20% of LHX’s true FCF, only 5% of revenue. Not insignificant, but not everything. More broadly, however, the obligation data here does look predictive of true FCF, so we have some real alt data on our hands, it seems.

The conclusion from this? First of all, the promise of alt data that no one has ontologized is enormous, but it’s hard to find outside corroboration of whether the data are up to date or accurate. So if you see something here that you’d want to act on, do some research first to confirm or deny whether this data are already incorporated into the news about these companies. As to the promise, there are 136K entities in this data receiving money. Below are some of the trend lines by total contract action obligation for the top 25 entities listed. My hierarchical mapping from SEC subsidiaries to tickers seems to be working reasonably well so far. And look at Amerisourcebergen Drug Corp’s trend towards the bottom. That’s a great trend.