We downgrade our recommendation on
) to Underperform, ahead of its third quarter fiscal 2013
financial results, which will be released on Apr 30, before the
Why the Downgrade?
Harris is suffering from tightness in the U.S. government
spending for defense coupled with a slowdown in international
defense expenditures. The reduction in budget spending that began
last month 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 and
see no immediate growth catalyst. Harris currently has a Zacks
Rank #4 (Sell).
Recently, Harris declared its revised financial guidance for
fiscal 2013. On a GAAP basis, earnings per share are now expected
to be within the range of $3.95-$4.33. The revised guidance for
adjusted earnings per share for fiscal 2013 was $4.60 to $4.70
compared with the prior guidance of $5.00- $5.20. The first
guidance range was $5.10 to $5.30. Total revenue for fiscal 2013
is now expected to decline by 6% to 7% year over year compared
with the prior estimate of a decline of 2% to 4%.
The main reason for this soft outlook is weaker-than-expected
demand for the company's tactical radios from international
customers. The U.S. is expected to reduce its activity in
South-East Asia. Furthermore, the ongoing global macroeconomic
headwinds took a toll on the company's order bookings. To cope
with this juncture, Harris has decided on curtailing expenses and
headcount reduction. 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.
Other Stocks to Consider
While we prefer to avoid Harris until we see signs of
improvement in the company's performance, other stocks in this
industry that are worth considering include
Motorola Solutions Inc.
Sonus Networks Inc.
). All the three stocks carry a Zacks Rank #2 (Buy).
HARRIS CORP (HRS): Free Stock Analysis Report
INTERDIGITL INC (IDCC): Free Stock Analysis
MOTOROLA SOLUTN (MSI): Free Stock Analysis
SONUS NETWORKS (SONS): Free Stock Analysis
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