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Harris Corp. (HRS - Analyst Report), a leading government communications equipments supplier, has recently won a major contract from the U.S. Army to supply its next-generation Falcon III AN/PRC-117G multiband manpack radios. The U.S. Army will utilize Flacon III radios to modernize its Brigade Combat Team’s tactical communications. Total order size is of $66.3 million. Falcon III is the next generation of total radios, which supports the U.S. military's Joint Tactical Radio System (JTRS) requirements, as well as network-centric operations worldwide.

We believe strong momentum in the RF Communications segment of Harris will continue in future since its next-generation Falcon III tactical radio is receiving increasing market traction. At the end of fiscal 2011 (June 30, 2011), of Harris’ total order backlog for the tactical radio communications was $766 million. Furthermore, tactical radios constitute a huge $3.3 billion pipeline opportunity throughout the world. So far, Harris shipped over 16,000 Falcon III AN/PRC-117G radios to the U.S. Department of Defense and its allies.

Despite this, we believe the company is facing several near-term concerns as the contraction of the U.S. and international defense expenditures may act as a major threat to Harris. Management has reduced its revenue guidance for fiscal 2012 by $300 million in the last two consecutive quarters. Through Harris remains confident that its consolidated pipeline opportunity is still intact, it remains exposed to stiff competition from its peers, such as Boeing Co. (BA - Analyst Report), General Dynamics Corp. (GD - Analyst Report), and Raytheon Co. (RTN - Analyst Report).

Nevertheless, Harris decided to boost its shareholders’ wealth through a new share repurchase program and also raised its dividend rate. Several recent acquisitions will also facilitate Harris to diversify its offerings outside the defense sector.

We maintain our long-term Neutral recommendation on Harris. Currently, it has a short-term Zacks #3 Rank (Hold) on the stock.

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