L-3 Communications Stays a Buy

Strong second quarter 2008 operating and financial results at L-3 Communications Holdings Inc. (LLL) wherein the company delivered growth across its business segments along with a healthy backlog position and a favorable industry outlook prompted management to raise 2008 sales, operating margin and earnings guidance.

Earnings were also boosted by the sale of a non-core product line and favorable ruling in its dispute with OSI Systems. This growth trend is expected to continue through 2008-09 due to an impressive product portfolio. Earnings growth will come through both organic and accretive acquisitions. Accordingly, we reiterate our Buy recommendation on LLL common stock with a six-month target price of $111.

Price appreciation to our near-term valuation target, combined with $0.30 per share quarterly dividend which we deem to be sustainable and secure based upon low projected earnings payouts represents annualized total return potential of 16.3%.

The company’s funded backlog increased 15% to $11 billion, with a book-to-bill ratio of 1.13 during the second quarter. LLL stock currently trades at a discount relative to comparable defense industry peers. L-3’s free cash flow is expected to be at least $1.2 billion for the full-year 2008. In the first half of 2008, the company repurchased $500 million worth of its stock.

Read the full analyst report on LLL

Read the full analyst report on LLL