L-3 Gets Naval Contract - Analyst Blog

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L-3 Communications Holdings Inc. ( LLL ) was awarded a $31.8 million firm-fixed-price contract by the Naval Air Warfare Center, Lakehurst, New Jersey. Per the contract the company will supply 40 MX-15HDi Turrets and associated field service support.  Work on the contract will be performed in Burlington, Ontario, Canada; Santa Rosa, California, and Afghanistan. L-3 Communications expects to finish work on the contract in February 2013.  

L-3 Communications Holdings operates through its wholly owned subsidiary, L-3 Communications Corporation. L-3 Communications is a leading supplier of a broad range of products and services used on a number of aerospace and defense platforms. In addition, the company is a prime system contractor for aircraft modernization and maintenance; ISR collection platforms; simulation and training; and government systems support services.

Recently, in July 2012, L-3 Communications completed the spin-off of 100% of a new, independent, publicly traded government services company - Engility Holdings Inc. ( EGL ) - to L-3 shareholders. We believe that L-3 Communications has ample opportunity for growth and profit expansion after the favorable conclusion to the spin-off of its Government Services businesses. The spin-off removed a lot of uncertainty with respect to revenue and will also take away some of the lowest margins at the company.

L-3 Communications remains a key player within the defense segment and mainly competes with FLIR Systems Inc. ( FLIR ) and Raytheon Company ( RTN ). We believe it is one of the best-positioned pure defense plays by virtue of its non-platform focus and a broad diversification of programs.

L-3 Communications is strengthening itself by focusing on improvement of operational efficiencies, investing in research and development to provide affordable solutions, acquiring businesses that will add new capabilities, and expanding product lines and divesting businesses. Moreover, its broad diversification of programs would provide growth momentum. Going forward, we expect future growth to come from the company's strong presence in the current focus areas of C3ISR equipment; precision-guided weapons; unmanned aerial vehicles ("UAVs"); and other electro-mechanical robotic capabilities.

This was reflected in the company's recently reported second quarter results with the top and bottom lines surpassing the corresponding Zacks Consensus Estimates with ease. Going forward, we expect the company to continue posting strong earnings based on its opportunities in growth areas, including Intelligence, Surveillance, and Reconnaissance, Electro-Optical/Infrared systems and cyber security.

Moreover, the company's balanced business mix, improving operational efficiencies and focus on research and development allow it to pursue strategic opportunities in the commercial arena and in overseas markets.

Also, with the completion of the spin-off, the company will be able to focus more on core areas by providing market-leading, value-added products and solutions to its customers. In the long run, we expect the company to be one of the best-positioned pure defense players based on its broad diversification of programs and its focus on shareholder value. However, we remain concerned about the loss of key contracts, defense spending cuts and the lack of near-term catalysts.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

L-3 Communications Holdings operates through its wholly owned subsidiary, L-3 Communications Corporation. L-3 Communications is a leading supplier of a wide range of products and services used in a number of aerospace and defense platforms.

 


 
(EGL): ETF Research Reports
 
FLIR SYSTEMS (FLIR): Free Stock Analysis Report
 
L-3 COMM HLDGS (LLL): Free Stock Analysis Report
 
RAYTHEON CO (RTN): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: EGL , FLIR , LLL , RTN

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