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Harris Corp. (HRS - Analyst Report) reported solid financial results for the first quarter of fiscal 2012, mostly in line with the Zacks Consensus Estimates. Nonetheless, 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.

While management remains confident that its consolidated pipeline opportunity is still intact, we are not sure exactly when these contracts are going to achieve fruition, given the ongoing political instability in Asian and African regions and an extremely slow pace of global economic recovery.

Meanwhile, in the previous quarter, Harris generated significantly higher new orders, which indicates the company’s superior product portfolio can sustain global economic headwinds. Accretive share repurchase plan coupled with huge order backlogs will act as positive catalysts for the stock going forward. We therefore reiterate our Neutral recommendation on Harris.

Harris generated significantly higher orders in the first quarter of fiscal 2012. Total order value was $1.62 billion, up 23% year over year and up 4% sequentially. Book-to-bill ratio for the whole company in the previous quarter remains greater than 1.0. We believe new orders will help Harris to improve margins due to favorable product-mix and its decision to shift tactical radio operations to a new product facility in order to reduce costs.

Harris depends on U.S. Government contracts for a major part of its revenue. In the future, Federal budgetary pressures may result in deeper than expected cuts in defense spending, which may significantly impact the company’s business prospects. Moreover, the company competes intensely with The Boeing Co. (BA - Analyst Report), General Dynamics Corp. (GD - Analyst Report) and Raytheon Co. (RTN - Analyst Report).

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