Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

On Feb 11, we reiterated our Neutral recommendation on L-3 Communications Holdings Inc. (LLL - Analyst Report) based on the company’s fourth quarter results and a fair guidance for 2013. However, loss of key contracts, a backlog skewed toward fixed price contracts and possibilities of cuts in future defense budgets remain areas of concern.

Why the Reiteration?

L-3 Communications Holdings operates through its wholly owned subsidiary, L-3 Communications Corporation. L-3 Communications is a leading supplier of a broad range of products and services used on a number of aerospace and defense platforms. In addition, the company is a prime system contractor for aircraft modernization and maintenance; simulation and training; and government systems support services.

We believe that L-3 Communications over the longer run is one of the best-positioned pure defense players based on its non-platform focus, prominent position as sub-contractor/supplier to other defense primes, broad diversification of programs and strong order bookings. Its strong balance sheet also provides financial flexibility to increase its dividend, indulge in share repurchases and earnings accretive acquisitions.

We believe future growth will come from its strong presence in the areas it currently focuses on. These include command, control, communications, intelligence, surveillance and reconnaissance (C3ISR) equipment; precision-guided weapons; unmanned aerial vehicles (UAVs); and other electro-mechanical robotic capabilities, networked information technologies, special operations forces, platform upgrades and counterterrorism initiatives.

On the flip side, however, a substantial portion of L-3 Communications’ business is generated within the U.S, with government and commercial sales accounting for more than 80% of total sales. Budget deficits and political uncertainty loom on future defense budgets with high chances of shrinkage.

Moreover, more than half of L-3 Communications’ sales come from fixed priced contracts. Consequently, the company will only be able to make a profit if costs stay within the set limits. Given these headwinds, we maintain our Neutral stance on L-3 Communications. The company now has a Zacks Rank #3 (Hold). For fiscal 2013 and 2014, we have an earnings ESP (Read: Zacks Earnings ESP: A Better Method) of +0.5% and +0.6%, respectively.

Others Stocks to Consider

In the aerospace and defense industry we presently prefer the Zacks Rank #1 (Strong Buy) stock, European Aeronautic Defence and Space Company , as well as the Zacks Rank #2 (Buy) stocks Huntington Ingalls Industries Inc. (HII - Snapshot Report) and FLIR Systems, Inc. (FLIR - Analyst Report).

 

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%