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Why Is Harris (HRS) Up 0.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Harris (HRS - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Harris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Harris Surpasses Q4 Earnings and Revenue Estimates

Harris reported solid fourth-quarter fiscal 2018 results, wherein both the top line and the bottom line surpassed the respective Zacks Consensus Estimate.

GAAP earnings from continuing operations increased to $1.74 per share from $1.35 in the year-ago quarter on top-line growth and tax benefit. For fiscal 2018, GAAP earnings per share from continuing operations increased 16% year over year to $5.94.

Fiscal fourth-quarter non-GAAP earnings from continuing operations were $1.78 per share compared with $1.49 in the year-earlier quarter, beating the Zacks Consensus Estimate of $1.76.

Revenues for the reported quarter increased 8% year over year to $1,666 million, driven by growth in Communication Systems and Electronic Systems. The top line surpassed the Zacks Consensus Estimate of $1,618 million. Fiscal 2018 revenues increased 5% to $6,182 million.

Total operating income for the quarter was $322 million compared with $275 million in the year-ago quarter. Operating margin was 19.3% compared with 17.8% in the prior-year period.

Segmental Performance

Revenues from Communication Systems segment came in at $523 million for the quarter, up 16% year over year, owing to growth in Tactical Communications and Night Vision. Operating income grew 11% to $162 million due to increased volume and operational efficiencies.

Revenues from Electronic Systems unit were $640 million, up 8% year over year, driven by growth in Avionics on increased F-35 production, in Electronic Warfare from F-16 and F/A-18 platforms and in C4ISR from the ramp up of the U.K. robotics and UAE battle management programs.

Operating income for the segment was $119 million, up 14% year over year due to higher volume and productivity.

Revenues from Space and Intelligence Systems unit remained flat year over year at $508 million, owing to growth in Classified programs, driven by the ramp of small satellites, ground-based processing adjacency and space surveillance programs, somewhat offset by lower sales in environmental projects. Operating income increased 8% to $86 million due to strong program execution and incremental pension income.  

Cash Flow and Balance Sheet

The company generated $751 million as cash from operating activities in fiscal 2018 compared with $569 million a year ago.

In fiscal 2018, the company generated adjusted free cash flow of $915 million compared with $850 million in the previous-year period.

At the end of fiscal 2018, the company had cash and cash equivalents of $288 million with net long-term debt of $3,408 million compared with respective tallies of $484 million and $3,396 million in the prior-year period.

Harris returned $544 million to shareholders through dividends and share repurchases in fiscal 2018.

FY19 Guidance

Harris provided guidance for fiscal 2019. The company expects revenues in the range of $6.53-$6.65 billion, up 6-8% from fiscal 2018. EPS from continuing operations in expected between $7.65 and $7.85. While free cash flow is projected to be more than $1 billion, tax rate is assumed to be around 17%.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

Currently, Harris has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value, growth, and momentum investors.

Outlook

Harris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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