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L3 Technologies (LLL) Up 5% Since Earnings Report: Can It Continue?

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It has been more than a month since the last earnings report for L3 Technologies . Shares have added about 5% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

L3 Technologies Tops Q3 Earnings, Raises '17 EPS View

L3 Technologies posted third-quarter 2017 earnings of $1.96 per share from continuing operations, surpassing the Zacks Consensus Estimate of $1.94 by 1%. Earnings also improved 4.3% from the year-ago figure of $1.88.

The company reported earnings of 29 cents per share excluding a previously disclosed goodwill impairment charge of $1.67 per diluted share for Vertex Aerospace.

Total Revenue

Total revenue of $2.65 billion in the quarter missed the Zacks Consensus Estimate of $2.69 billion by 1.6%. However, the top line was up 5.6% year over year.

Organic sales to the U.S. government increased 4%, while that to international and commercial customers improved 3%. Overall, organic sales increased 4% in the quarter.

Orders & Margin

Funded orders in the reported quarter were $3.1 billion, reflecting a 16% year-over-year rise. Funded backlog was $9 billion as of Sep 30, up 1% from $8.51 billion as of Jun 30, 2017.

Operating margin contracted 620 basis points (bps) to 2.4% in the quarter.

Segmental Performance

Electronic Systems: Net sales at the segment increased approximately 13% to $715 million from the prior-year figure of $635 million, mainly on account of significant organic sales growth.

Operating income was $103 million compared with the year-ago figure of $88 million, while operating margin expanded 50 bps to 14.4%.

Aerospace Systems: The segment recorded net sales of $1,025 million in the reported quarter, up approximately 1%. The upside was driven by higher sales at Vertex Aerospace.

While operating income increased to $57 million from $56 million, operating margin expanded 10 bps to 5.6%.

Communication Systems: Net sales at the segment improved about 7% to $540 million, primarily owing to increased volume and deliveries of secure networked communication systems to the U.S. Department of Defense (DoD).

While operating income improved roughly 5% to $42 million, operating margin contracted 10 bps to 7.8%.

Sensor Systems: Net sales at the segment grew around 3% to $366 million, primarily buoyed by organic sales growth.

Operating income rose around 55% to $48 million and operating margin expanded 430 bps to 13.1%.

Financial Position

As of Sep 30, L3 Technologies had $439 million in cash and cash equivalents compared with $363 million as of Dec 31, 2016.

Long-term debt as of Sep 30 was $3,329 million compared with $3,325 million as of Dec 31, 2016.

Net cash from operating activities was $667 million at the end of the quarter, up 13.8% from the year-ago figure. Capital expenditure totaled $154 million compared with $126 million in the prior year.

2017 Guidance

L3 Technologies has raised its 2017 outlook again. The company now expects earnings in the range of $8.80-$8.90 per share (versus the prior range of $8.65-$8.85). Revenues guidance was reiterated at $10,800-$11,000 million.

The company also reaffirmed its expectation of cash from operations of around $1,030 million and resultant free cash flow of $875 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.

VGM Scores

At this time, L3 Technologies stock has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

While estimates have been broadly trending upward for the stock, the magnitude of these revisions indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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