Harris Wins Middle East Contract

Harris Corporation (HRS - Analyst Report), a leader in the public safety and professional communication market, received an order from Middle East worth $25 million for its Falcon II high frequency tactical radios as a part of the country’s effort to upgrade its military communication system.

As a part of the deal, Harris will supply its path breaking Falcon II RF-5800H base stations, Vehicular systems and manpack radios to provide terrestrial voice and data communications in remote and inaccessible areas for the country’s armed forces. Harris’s RF-5800H offers advanced features like third generation-Automatic Link Establishment for initiating contact between two HF radios coupled with providing links for data sharing. Harris's Falcon II HF manpack radio provides reliable long-range communications with enhanced secure voice and data performance.

Harris’s RF Communications segment provides secure radio communications and embedded high-grade encryption solutions for military, government and commercial organizations. The company’s Falcon II software-based radios other than easily adapting latest technology also allows new features to be added quickly and cost effectively.

Growing momentum in the RF Communications segment in the international markets is likely to continue since Harris’s next-generation Falcon II and Falcon III tactical radio products are receiving increasing market traction. At the end of the previous quarter, order backlog came in at $1.3 billion including $665 million in Tactical Radio Communications segment.

We believe, this order from the Middle East will not only expand the company’s international presence and order book but will also reduce its dependence on the U.S. government, which has decided to squeeze its defense budget by nearly $500 billion over the next decade.

However, slowdown in international as well as national defense expenditures coupled with intense competition from the likes of General Dynamics Corp. (GD - Analyst Report) and Motorola Solutions, Inc. (MSI - Analyst Report) can put Harris on the back foot.

The current Zacks Consensus Estimate for Harris Corp. is pegged at $1.12 for the fiscal first quarter 2013 with a growth rate estimate of 5.92%. For fiscal years 2013 and 2014, the Zacks Consensus Estimates stand at $5.15 and $5.28 with a growth rate of (0.91%) and 2.52% respectively.

Recommendation:

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