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L3 Technologies (LLL) Up 4.8% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for L3 Technologies Inc. . Shares have added about 4.8% in that time frame.

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

L3 Technologies Beats on Q1 Earnings, Ups '18 EPS View

L3 Technologies posted first-quarter 2018 earnings of $2.34 per share from continuing operations, surpassing the Zacks Consensus Estimate of $1.99 by 17.6%. The reported figure came in 21% higher than the year-ago quarter’s tally of $1.93. The year-over-year improvement was driven by a decent increase in revenues and operating income.

Total Revenues

In the quarter under review, total revenues came in at $2.37 billion outpacing the Zacks Consensus Estimate of $2.33 billion by 1.7%. The top line also improved 2% year over year.

Organic sales to the U.S. government inched up 1%, while that to international and commercial customers improved 3%. Overall, organic sales were up 2%.

Orders & Margin

Funded orders in first-quarter were $2.6 billion, reflecting a 10% rise compared with last year. Funded backlog was $8.8 billion as of Mar 30, 2018, up 3% from $8.5 billion as of Dec 31, 2017.

Operating margin contracted 40 basis points (bps) to 10.6% in the reported quarter.

Segmental Performance

Electronic Systems: Net sales at the segment improved 6% to $785 million from the prior-year figure of $738 million driven by significant organic sales growth.

Operating income was $108 million compared with the year-ago figure of $90 million, while operating margin expanded 160 bps to 13.8%.

Aerospace Systems: The segment recorded net sales of $686 million in the quarter, down annually by 1%. The downside can be attributed to lower volume for international aircraft modifications and lower volume of Intelligence, Surveillance and Reconnaissance (ISR) aircraft systems for foreign military customers.

While operating income increased to $57 million from $56 million, operating margin expanded 30 bps to 8.3%.

Communication Systems: Net sales at the segment declined 8% to $493 million due to lower production volume for Unmanned Aerial Vehicle (UAV) communication systems for the Department of Defense.

While operating income decreased 12% to $37 million, operating margin contracted 30 bps to 7.5%.

Sensor Systems: Net sales at the segment improved 16% to $407 million driven by higher organic sales.

Operating income remained flat at $48 million, while operating margin contracted 200 bps to 12%.

Financial Position

As of Mar 30, 2018, L3 Technologies had $374 million in cash and cash equivalents compared with $662 million as of Dec 31, 2017.

Long-term debt as of Mar 30, 2018, was $3,331 million compared with $3,330 million as of Dec 31, 2017.

Net cash outflow from operating activities was $35 million at the end of first-quarter 2018 compared with the year-ago quarter’s cash inflow of $86 million. Capital expenditures totaled $56 million compared with $41million in the year-ago quarter.

2018 View

L3 Technologies raised its 2018 earnings guidance. The company now expects earnings in the range of $9.40-$9.60 per share compared with $9.30-$9.50 guided earlier. However, revenue guidance was reiterated at $9,850-$10,050 million.

The company also raised its expectation of cash from operations to $1,155 million from $1,145 million, while expectation for free cash flow remained at $900 million for 2018.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been four revisions lower for the current quarter.

L3 Technologies Inc. Price and Consensus

 

L3 Technologies Inc. Price and Consensus | L3 Technologies Inc. Quote

VGM Scores

At this time, LLL has a poor Growth Score of F, however its Momentum is doing a lot better with a B. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 momentum based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, LLL has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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