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Is Harris (HRS) Poised to Beat Earnings Estimates?

HRS MSI TWC SHOR

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Harris Corp. (HRS - Analyst Report), one of the leading companies in the public safety and professional communication market, is set to release its first-quarter of fiscal 2014 results before the opening bell on Oct 29, 2013.

In the last quarter, the company delivered a 23.68% earnings surprise. Let’s see how things are shaping up for this announcement.

Factors to be Considered This Quarter

Recently, Harris won a $960-million major deal from the U.S. Air force Network-Centric Solutions-2 (NETCENTS-2) Application Services. Per the deal, Harris will supply indefinite amount of IT related products and services for three years. Additionally, Harris has won several orders for its tactical radio products from the international markets, which will not only strengthen its order book, but will also compensate the weakness in the domestic market.

Moreover, the company is on the verge of signing deals with four major airlines on DCIS equipage and has won $150 million contract for a period of seven years from the Federal Aviation Administration’s (FAA) NextGen Data Communications Program. Such robust growth prospects have induced the company to provide an improved financial guidance for fiscal 2013.

Meanwhile, Harris mostly depends on the U.S. Government contracts for a major part of its revenues. In the future, any additional Federal budgetary pressures may result in deeper-than-expected cuts in defense spending, which may significantly impact the company’s business prospects.

Furthermore, a shift in the U.S. Government’s foreign policy may result in the termination of some major international contracts. Additional risks may emanate from large-scale long-term fixed-priced contracts if costs escalate beyond contract pricing.

We believe that the ongoing defense budget contraction will continue to affect Harris in the long run. Moreover, demand for the high-margin Integrated Network Solution products is weaker than expected primarily due to a delay in the healthcare software release.

Earnings Whispers

Our proven model does not conclusively show that Harris is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate Estimate is $1.12 while the Zacks Consensus Estimate is higher at $1.13. This leads to an ESP of -0.89% for Harris.

Zacks Rank #2 (Buy): Harris’s Zacks Rank #2, decreases the predictive power of ESP.

We caution investors against the stock going into the earnings announcement, as a Zacks Earnings ESP of -0.89% combined with a Zacks Rank # 2 lowers the possibility of an earnings surprise.

Other Stocks to Consider

Here are some other companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter.

ShoreTel, Inc. (SHOR - Snapshot Report) has Earnings ESP of +28.57% and carries a Zacks Rank #1 (Strong Buy).

Motorola Solutions Inc. (MSI - Analyst Report) has Earnings ESP of +2.04% and carries a Zacks Rank #2 (Buy).

Time Warner Cable (TWC - Analyst Report) has Earnings ESP of +1.22% and carries a Zacks Rank #3 (Hold).

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