L-3 Communications Holdings Inc.
) along with fellow aerospace company
) was jointly awarded a $200 million firm-fixed-price
contract. The award will provide for the procurement of
Enhanced 3rd Generation Aviator's Night Vision Imaging Systems. L-3
Communications expects to finish work on the contract by September
3, 2017. The U.S. Army Contracting Command, Aberdeen Proving
Ground, Maryland, is the contracting activity.
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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
Engility Holdings Inc.
) - 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 company has retained its profitable Cyber,
Intelligence, and Security Solutions business. The spin-off also
removes a lot of uncertainty with respect to revenue and takes away
some of the low margin businesses of the company. Over the longer
run, we view the company as one of the best-positioned pure defense
players based on its non-platform focus, broad diversification of
programs and its focus on shareholder value.
L-3 Communications remains a key player within the defense segment
and mainly competes with
FLIR Systems Inc.
). We believe it is one of the best-positioned pure defense plays
by virtue of its non-platform focus and a broad diversification of
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
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
L-3 Communications currently retains a Zacks #4 Rank, which
translates into a short-term Strong Sell rating. Over the longer
run, we maintain our Neutral recommendation on the stock.