Recently, Harris Corp. (HRS - Analyst Report) received a major contract to supply tactical area communications system for the border security program of Brazil. Harris will work with SAVIS Tecnologia e Sistemas S/A for modernizing 650 kilometers of border area in the western part of Brazil. This will be the largest border security program in Latin America. However, the financial term of the contract is yet to be disclosed.
Harris’ tactical communications system portfolio includes its industry-leading Falcom III 7800 tactical radio family. Earlier, Harris was selected as one of the 20 contractors to compete for work under the Global Tactical Advanced Communications Systems contract initiated by the U.S. Army’s Program Executive Office-Command Communications and Control. The total value of the contract is $10 billion over a 5-year period to supply advanced communications technologies such as, wireless networking and tactical satellite communications.
We believe that this Brazilian contract is extremely valuable for Harris, especially under current circumstances. The companyis suffering from tightness in the U.S. government spending for defense coupled with a slowdown in international defense expenditures. The reduction in budget spending resulted in delays in tactical radio procurements coupled with the growing concern that major tactical radio orders from international markets will be postponed to later this fiscal or early in the next. We believe that the ongoing defense budget contraction will continue to affect Harris in the long run.
To cope up with this juncture, Harris has decided on reducing expenses and headcount. These cost-control measures will result in $65 million to $115 million pre-tax charges but annual cost savings of $40 million to $50 million. Harris currently has a Zacks Rank #4 (Sell).
Other Stocks to Consider
While we prefer to avoid Harris until we see signs of improvement in the company's performance,otherstocks in this industry that are worth considering include ShorTel Inc. (SHOR - Snapshot Report), Ubiquiti Networks Inc. (UBNT - Analyst Report) and InterDigital Inc. (IDCC - Snapshot Report). While ShorTel and Ubiquiti currently have a Zacks Rank #1 (Strong Buy), InterDigital has a Zacks Rank #2 (Buy).