It's been almost two months since defense contractor L3Harris (LHX 0.11%) reported its first-quarter 2023 earnings. To date, the total change in share price from before earnings came out through Friday's closing price is...less than 1% (specifically, down by 0.7%).

Over the entire two-month span, L3Harris shares have gyrated a bit more than that tiny change might suggest. However, overall and over a considerable span of time, investor consensus still appears to be that L3Harris's Q1 earnings report was kind of a non-event, and the company is doing just fine today.

I disagree.

L3Harris by the numbers

On the surface, at least, I admit that L3Harris seemed to have a fine quarter. Quarterly sales of $4.4 billion exceeded analyst estimates, as did adjusted earnings of $2.86 per share (although generally accepted accounting principles [GAAP] earnings declined). L3Harris's guidance for the rest of this year was also better than it might have been. Management predicted that fiscal 2023 might see sales of anywhere from $17.4 billion to $17.8 billion -- far more than Wall Street's expected $16.1 billion -- with adjusted earnings of about $12.25 per share (versus Wall Street's projection of $11.16).

But consider what these numbers represent.

If L3Harris maxes out its own revenue guidance, $17.8 billion in 2023 sales would work out to just 4.1% year-over-year sales growth. That would be better than the 4% sales decline suffered in 2022, but still -- it's not enough to make L3Harris any kind of a growth stock. And as for earnings, $12.25 per share would represent a 5% decline in adjusted earnings from 2022.

On the plus side, L3Harris's unadjusted earnings -- its earnings as calculated according to GAAP -- were only $5.49 per share last year. Based on L3Harris's guidance, analysts now think that number could grow as high as $8.70 per share in 2023. However, that would leave the stock trading for 22 times current-year GAAP earnings while growing sales at only 4%. And that wouldn't make L3Harris seem like much of a value stock, either.

Granted, L3Harris's free-cash-flow (FCF) statement shows numbers significantly better than those calculated under GAAP. FCF for the past year totals $2.2 billion, and analysts see this holding more or less steadily throughout the year, with a forecast of $2.1 billion in FCF in 2023. The problem is when you factor in debt and cash, this results in an enterprise value-to-FCF valuation of 22.4 on the stock -- almost exactly the same as the stock's price-to-earnings (P/E) ratio.

The problem with L3Harris

So, here's the problem for L3Harris investors in a nutshell:

On the one hand, the stock doesn't look too awfully expensive at a 22 times valuation (whether valued on earnings or FCF -- take your pick). The whole S&P 500 trades at a 25 times valuation right now, after all. On the other hand, though, most analysts see the S&P 500, as a whole, growing earnings at better than 10% per year over the next five years -- while they see L3Harris growing at closer to 3% or 4% (according to data from S&P Global Market Intelligence).

Apples to apples -- therefore, L3Harris looks like a worse value than the average S&P stock -- unless L3Harris can find a way to boost its growth rate. So how does it do that?

The "answer" for L3Harris

Historically, L3Harris has tended to grow its business by buying up other companies and consolidating them to form a defense stock giant. And true to form, L3Harris last year struck upon the idea of buying rocket engine maker Aerojet Rocketdyne (AJRD) to grow a bit more.

Just last week, Lockheed Martin expressed opposition to this merger, warning that it could hurt competition in the defense industry. But from L3Harris's perspective, this acquisition may make sense -- at first glance.

With the war in Ukraine dragging on, there's a huge demand for rocket engines for both offensive and defensive missiles. With the space race in full effect, there's also demand for engines to power all the new space rockets being built. Seeing these trends, many analysts forecast rapid earnings growth for Aerojet Rocketdyne, predicting earnings will more than triple from just $0.90 per share last year, for example, to $2.95 per share by 2025.

However, the problem with this thesis is that it's dead wrong.

For one thing, while demand for space engines is indeed growing, Aerojet Rocketdyne isn't winning this space race. It's losing to a whole array of new-space companies building better engines -- for cheaper. For example, Aerojet's bid to put AR1 engines on United Launch Alliance's Vulcan Centaur rocket ended in defeat when Blue Origin won that contract. And Aerojet's RS-25 engines that power NASA's Space Launch System are so expensive that they form the centerpiece of a new NASA Office of Inspector General investigation into cost overruns at Project Artemis.

Same story financially. According to S&P Global data, over the past three years, L3Harris has seen its revenues shrink at an average rate of 6.6% per year, while earnings contracted at a 17% rate -- which is bad. Aerojet, however, is worse. Aerojet grew its revenues at a 5.3% rate, but its earnings shrank even faster than L3Harris's, contracting at a rate of 17.9%!

Long story short, L3Harris may look at Aerojet Rocketdyne stock and see a company growing sales and, thus, a solution to its problem of too-slow growth. But analyst optimism notwithstanding, I see Aerojet Rocketdyne as a perennial underperformer that's likely to drag L3Harris down further.