We reiterate our long-term Neutral recommendation on
) following its mixed financial results in the fourth quarter of
fiscal 2013. While earnings per share easily surpassed the Zacks
Consensus Estimate, revenue fell short of the same.
Why Keeping at Neutral?
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
In order to minimize the negatives of defense budget
contraction, management is emphasizing other business verticals
including, IT transformation of the healthcare industry, public
safety communications, and maritime communications.
Nevertheless, Harris is currently trading at attractive
multiples with respect to several valuation metrics compared with
the industry average and S&P 500. Harris currently has a
Zacks Rank #3 (Hold).
Risk/Reward Virtually Balanced
Harris depends on the U.S. Government contracts for a major
part of its revenue. The Department of Defense has decided to
squeeze its budget by nearly $500 billion over the next decade.
In the future, any additional Federal budgetary pressures may
result in deeper-than-expected cuts in defense spending, which
may significantly impact the company's business prospects.
Furthermore, a shift in the U.S. Government policy in foreign
relations may result in the termination of some major
international contracts. Additional risks may emanate from large
long-term fixed-priced contracts if costs escalate beyond
However, demand for the RF Communications products in the
International markets is likely to remain firm since Harris'
next-generation Falcon III tactical radio is receiving increasing
market traction. At the end of the reported quarter, order
backlog came in at $1.142 billion including $561 million in
Tactical Radio Communications and $581 million in Public Safety
and Professional Communications.
Management estimated that within the U.S., in the coming 12-18
months, the opportunity pipeline is $1.2 billion and for the
international market, the opportunity pipeline is $2.4
Other Stocks to Consider
Other stocks to consider in the communications and information
technology provider for government and public utility segment are
The Boeing Co.
General Dynamics Corp.
Motorola Solutions Inc.
). Boeing currently has a Zacks Rank #2 (Buy), whereas both
General Dynamics and Motorola Solutions carry a Zack Rank #3
BOEING CO (BA): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis
HARRIS CORP (HRS): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis
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