On Dec 6, 2013, we maintained our Neutral recommendation on
L-3 Communications Holdings Inc.
). The company holds a Zacks Rank #3 (Hold).
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Why the Reiteration?
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; simulation and training; and government systems
Recently, the company posted mixed third quarter 2013 results
with earnings topping the Zacks Consensus Estimate and revenues
missing it. Sales declined year over year at all the segments.
However, international sales were up 2% in the third quarter that
helped in partially offsetting declines from sequestration and
the Afghanistan drawdown. The C3ISR programs are a critical
component in accelerating the company's future growth trajectory.
The fiscal 2014 budget calls for continued funding of the C3ISR
programs and with growing international interest in the SPYDR ISR
and maritime patrol programs, we believe L-3 is poised to benefit
significantly in the future. Hence, a steady inflow of
international orders, especially from the emerging Asian and Gulf
countries, will help L-3 to combat the domestic market
L-3's constant efforts to upgrade technology will strengthen its
profitable business segments like Electronic Systems and Platform
& Logistics Solutions. Both these divisions have won key
orders during the third quarter reflecting the success of L-3's
strategy to expand international and commercial sales. Its plan
to boost its research and development as well as technological
capabilities will attract potential customers. Moreover,
incentives offered by the government like the $14 million
research and development tax credit will likely lift L-3's net
profit in the upcoming quarters.
All said, the sequestration will to some extent dry up orders for
this defense major.
Other Stocks to Consider
Some other stocks worth considering in the defense sector include
Northrop Grumman Corp.
The Boeing Company
). While Raytheon sports a Zacks Rank #1 (Strong Buy), Northrop
and Boeing carry a Zacks Rank #2 (Buy).