On Dec 19, we maintained our Neutral recommendation on
). The company reported mixed first-quarter 2014 results with the
bottom line outpacing the Zacks Consensus Estimate but the top
line missing the same.
Why Reiterated at Neutral?
Recently, the U.S. Army raised the amount of the IDIQ tactical
communications deal with Harris to $847 million. The
contract was signed in 2011.
Nevertheless, winning two major contracts worth $960 million
and $150 million from the U.S. Air force Network-Centric
Solutions-2 (NETCENTS-2) Application Services and the Federal
Aviation Administration's (FAA) NextGen Data Communications
Program, respectively, and the the U.S. Army decision to spend
roughly $600 million on mid-tier radios over the next 10 years
will continue to bolster the company's revenue growth going
The acquisition of CapRock Communications gives Harris a strong
foothold in the lucrative energy market. CapRock is a global
provider of managed satellite communications solutions for
energy, government and maritime industries.
The CapRock unit has struck a five-year deal with
) to deliver communications services to more than 100 cruise
ships of 10 different cruise lines. Moreover, it has won a
seven-year deal worth $45 million from an oil and gas equipment
service company, which we believe will further drive the company
top line going forward.
Harris continues to boost shareholders' wealth by paying
uninterrupted dividends throughout the year.
Harris mostly depends on the U.S. Government contracts for a
major part of its revenues. The Defense Department has decided to
reduce its budget by nearly $500 billion over the next decade. In
the future, any additional Federal budgetary pressures may result
in deeper-than-expected cuts in defense spending, which may
significantly impact the company's business prospects.
Furthermore, a shift in the U.S. Government's foreign policy may
result in the termination of some major international contracts.
Additional risks may emanate from large-scale long-term
fixed-priced contracts if costs escalate beyond contract pricing.
We believe that the ongoing defense 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
Harris currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
The stocks which are performing better in the similar sector are
Ubiquiti Networks, Inc.
Motorola Solutions Inc.
). Both, Qualcomm and Motorola Solutions have a Zacks Rank #2
(Buy) while Ubiquiti Networks has a Zacks Rank #1 (Strong
CARNIVAL CORP (CCL): Free Stock Analysis
HARRIS CORP (HRS): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis
QUALCOMM INC (QCOM): Free Stock Analysis
UBIQUITI NETWRK (UBNT): Free Stock Analysis
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