Harris Corp. ( HRS - Analyst Report ) reported mixed financial results for the first quarter of fiscal 2013. Harris is facing several near-term concerns as the contraction of the U.S. and international defense expenditures may act as major threats to the company. Though management remains confident that the company’s consolidated pipeline opportunity is still intact, we are not sure exactly when these contracts are going to be realized.

In order to minimize the negatives of defense budget contraction, Harris is emphasizing other business verticals including, IT transformation of the healthcare industry, public safety communications and maritime communications. Management is gradually disinvesting its non-core businesses. Further, Harris is paying regular dividend, maintaining a systematic share buyback program, generating increasing free cash flow, apart from currently trading at attractive multiples. We, thus, reaffirm our Neutral recommendation on Harris.

The acquisition of CapRock Communications gives Harris a strong foothold in the lucrative energy market. CapRock is a global provider of managed satellite communications solutions for energy, government, and maritime industries. Similarly, the acquisition of Global Connectivity Services (GCS) business from Schlumberger Ltd has significantly enhanced Harris’ capability in the mission-critical and end-to-end managed satellite communications market.

The acquisition of M/A-COM public safety business is also generating synergies for Harris’ existing land mobile radio business. Integration of high-end solutions of M/A-COM enables Harris to gain a strong foothold in the global Public Safety and Professional Communications market.

However, a slowdown in international as well as domestic defense expenditurescoupled with intense competition from the likes of General Dynamics Corp. ( GD - Analyst Report ) and Motorola Solutions, Inc. ( MSI - Analyst Report ) may put Harris on the back foot in the near term.