LLL Gets Australian Contract - Analyst Blog
L-3 Communications Holdings Inc. ( LLL ) announced that it has been selected by the Commonwealth of Australia to provide the C-27J Spartan for the country's Battlefield Airlifter program.
According to the company, the U.S. Foreign Military Sales program has an approximate contract value of $600 million and includes the supply of 10 new C-27J aircraft worth about $300 million, plus contractor logistics support, spares and training.
Australia selected the C-27J aircraft for its multifunctional ability. The aircraft is capable of logistical re-supply, medevac, troop movement, airdrop operations and humanitarian assistance.
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. The company reported fiscal 2011 sales of $15.2 billion.
L-3 Communications recently increased its revenue guidance range for full-year 2012 to $14.6 billion-$14.8 billion versus its prior expectation of $14.4 billion-$14.6 billion. The company expects operating margin of 10.1% and EPS in the range of $8.45-$8.60 for fiscal 2012.
L-3 Communications remains a key player within the defense segment and mainly competes with FLIR Systems Inc. ( FLIR ) and Cyalume Technologies Holdings Inc. ( CYLU ). We believe it is one of the best-positioned pure defense plays by virtue of its non-platform focus and 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.
However, we are concerned about the loss of key contracts, defense spending cuts and lack of near-term catalysts. Order growth and volume increases also remain dubious in this challenging environment.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.