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Following the fiscal 2012 third quarter earnings announcement on May 1, none of the analysts covering Harris Corp. (HRS - Analyst Report) have made any revisions to their estimates. The brokers have retained their estimates as they believe that the company will perform well over the long term based on its strong order book. However, they remain concerned about the U.S. government’s decision to cut its Defense sector spending. 

First Quarter Highlights

On a GAAP basis, quarterly net loss was $256.3 million or a loss of $2.27 per share, compared with $139.5 million or $1.12 per share in the year-ago quarter. Adjusted EPS of $1.39 surpassed the Zacks Consensus Estimate of $1.34.

Quarterly total revenue of $1,476 million was up 4.47% year over year, and marginally above the Zacks Consensus Estimate of $1,474 million.

Agreement of Analysts

Of the nine analysts covering the stock in the last seven days, none have revised their estimates for the fourth quarter of 2012. Similarly, for the first quarter of 2013, none of the seven analysts covering the stock have made any changes to their estimates.

For fiscal 2012, out of the eight analysts covering the stock in the last seven days, none have revised their estimates. The trend is similar for fiscal 2013 as well, where none of the nine analysts covering the stock have revised their estimates.

Currently, the Zacks Consensus Estimate for the fourth quarter of fiscal 2012 is $1.42, with a projected annual growth of 14.16%. For the first quarter of fiscal 2013, the Zacks Consensus Estimate of $1.16 indicates an annual gain of 9.70%.

Magnitude of Estimate Revisions

As a result of the analysts’ reluctance to revise estimates either way over the past seven days, the Zacks Consensus Estimates for the fourth quarter of 2012 and first quarter of 2013 has remained static at $1.42 and $1.16 per share, respectively. Similarly for fiscal 2012 and 2013, the current Zacks Consensus Estimates has remained unchanged over the past week at $5.20 and $5.16, respectively.    

Earnings Surprises

The company has outdone the Zacks Consensus estimates in all of the four previous quarters. In the third quarter of 2012, Harris Corp. outpaced the estimate by 5 cents, or 3.73%.

The estimates for the ongoing and first quarter of fiscal 2013 are in line with the Zacks Consensus Estimate. Similarly for fiscal 2012 and 2013 the estimates are in line with the Zacks Consensus Estimate.

Our Recommendation

We believe that Harris Corp. will benefit from the international market share gain in the tactical radio communication segment. The company is getting synergies for its land mobile radio business with the acquisition of M/A-COM. Moreover, the acquisition of CapRock communication gives Harris the opportunity to increase its presence in energy, government and maritime industries. 

However, restricted spending in the defense sector from the U.S. Government coupled with a slowdown in international defense expenditure is major threat for the company. As the U.S. Government changes its foreign policy, the company might end up losing certain contracts. Stiff competition from rivals Boeing Co. (BA - Analyst Report) and General Dynamic Corp. (GD - Analyst Report) creates additional pressure on Harris Corp.

Considering these factors, we maintain our long-term Neutral recommendation on Harris Corp. Currently, Harris Corp has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

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