We upgrade our recommendation on
) to Neutral from Underperform following mixed third-quarter
fiscal 2013 financial results.
Why the Upgrade?
The company's earnings per share of $1.12 were in line with
the Zacks Consensus Estimate. However, consolidated revenues in
the reported quarter stood at $1,203.7 million, down 12.1% year
over year, missing the Zacks Consensus Estimate of $1,209
Harris is suffering from tightness in the U.S. government
spending for defence coupled with a slowdown in international
defence expenditures. The reduction in budget spending that began
in March resulted in delays in tactical radio procurements. The
budget contraction also caused growing concern that the major
tactical radio orders from international markets will be
postponed to later this fiscal year or early next year.
However, Harris has won a major $500 million contract
extension from the U.S. Army Communications Electronics Command
recently. Additionally, Harris has won several orders for its
tactical radio products from the international markets, which
will not only strengthen its order book but will also compensate
the weakness in the domestic market.
We believe that the ongoing defence budget contraction will
continue to affect Harris in the long run. Moreover, demand for
the high-margin Integrated Network Solution products is weaker
than expected primarily due to a delay in the healthcare software
release. Additional risks may emanate from large-scale long-term
fixed-priced contracts if costs escalate beyond contract
In order to minimize the negatives, Harris is emphasizing on
other business verticals including IT transformation of the
healthcare industry, public safety communications and maritime
Currently, Harris carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Other stocks in this industry that are worth considering
Ubiquiti Networks Inc.
). Currently, Ubiquiti and ShorTel hold a Zacks Rank #1 (Strong
Buy), while InterDigital carries a Zacks Rank #2 (Buy).
HARRIS CORP (HRS): Free Stock Analysis Report
INTERDIGITL INC (IDCC): Free Stock Analysis
SHORETEL INC (SHOR): Free Stock Analysis
UBIQUITI NETWRK (UBNT): Free Stock Analysis
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