We have downgraded our recommendation to Underperform on
L-3 Communications Holdings Inc.
), which is currently trading at a discount to both the peer group
and the S&P 500 based on forward earnings estimates. The
discounted valuation is owing to its nonplatform focus on shorter
cycle contracts. This results in contracts expiring faster than its
peers, bringing in the need for new ones to replace them.
In the near term, the company is witnessing lower sales while
higher competition has resulted in margin headwinds through
re-competitions of existing businesses. Thus we would advise
investors to exit from the company for now until the ongoing macro
The company ended last quarter with cash and cash equivalents of
$481 million versus $548 million at the end of the second quarter
of 2011. Long-term debt was $4.1 billion, flat year over year. L-3
Communications expects its yearly revenue to be in the range of
$12,950 million $13,150 million, earnings in the range of $7.70 to
L-3 COMM HLDGS (LLL): Free Stock Analysis
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