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Orders continue to pour in from the Department of Defense (DoD). The DoD handed out contracts worth $1.4 billion last Friday among which a key winner was L-3 Communications Holdings Inc. (LLL - Analyst Report). Other contract winners included Raytheon Company (RTN - Analyst Report) and Lockheed Martin Corp. (LMT - Analyst Report).

L-3 Communications won a $96.4 million contract to work on the P-3, EP-3 and NP-3 Sustainment Modification and Installation program. The primary tasks involve performing maintenance and structural replacement, fabrication work on special structural inspection kits, center wing assemblies, zone five kits, and outer wing installations and restorations on the U.S. Navy P-3 Orion aircraft and their variants.

The work relating to the contract will take place in Waco, Texas. The contracting activity is the Naval Air Systems Command, Patuxent River in Maryland. The contract is anticipated to be completed by Sep 2014.

Though not so large as some of the leading defense contractors, L-3 Communications has maintained a healthy order book on the back of its diversified operations and technological upgrades. The company stands to benefit from the $14 million government research and development tax credit, which will boost its net profit in the upcoming quarters.

Steady foreign military sales contracts are also expected to be a growth driver in the coming years. Recently, L-3 Communications clinched a $30 million contract from the Republic of Korea for the supply of state-of-the-art Ground Laser Target Designators.

The 2014 defense budget saw increased investments in operation and maintenance of major defense products to strengthen the country’s military infrastructure. Intelligence, surveillance, and reconnaissance (ISR) programs will also remain a prime focus of the DoD in the coming years.

We believe these positive fundamentals will keep L-3 Communications well-positioned in the sector. Currently, L-3 Communications has a Zacks Rank #3 (Hold). A better-placed defense operator at the moment is Zacks Ranked #2 (Buy) Northrop Grumman Corp. (NOC - Analyst Report).

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