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L-3 Communications Holdings Inc. (LLL - Analyst Report) has received a five-year contract worth $1.98 billion for rotary-wing aircraft maintenance and logistics support at Fort Rucker, Alabama from the U.S. Army Contracting Command on behalf of U.S. Army Aviation and Missile Life Cycle Management Command (AMCOM). The contract has a one-year base period and four one-year options.
A rotorcraft or rotary wing aircraft is a heavier-than-air flying machine that uses lift generated by wings, called rotor blades that revolve around a mast. Rotorcraft generally includes those aircraft where one or more rotors are required to provide lift throughout the entire flight, such as helicopters, cyclocopters, autogyros, and gyrodynes.
Per the contract, the company will be responsible for providing maintenance, logistics and other related sustainment support services for more than 600 helicopters used by the U.S. Army Aviation Center of Excellence and the U.S. Air Force Air Education Training Command.
Based in New York City, L-3 is a prime contractor in Command, Control, Communications, Intelligence, Surveillance and Reconnaissance systems, aircraft modernization and maintenance, and national security solutions. L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platforms. Over the longer run, we view the company as one of the best-positioned pure defense players based on its non-platform focus, broad diversification of programs and its focus on shareholder value.
Recently, L-3 Communications completed the spin-off of 100% of a new, independent, publicly traded government services company – Engility Holdings, Inc. (EGL) – to L-3 shareholders. We believe that L-3 Communications has ample opportunity for growth and profit expansion after the favorable conclusion to the spin-off of its Government Services businesses. The spin-off will remove a lot of uncertainty with respect to revenue and will also take away some of the lowest margins at the company.
However, negative offsets include the loss of key contracts, defense spending cuts and the lack of near-term catalysts. Order growth and volume increases also remain dubious in this challenging environment. Thus we would advise investors to remain on the sidelines for now until the ongoing macro headwinds subside.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
L-3 Communications is expected to release its second quarter 2012 results tomorrow. The Zacks Consensus Estimate for second quarter 2012 and fiscal 2012 are $2.01 and $8.33, respectively.
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