Why Is L3Harris (LHX) Up 3.8% Since Last Earnings Report?
A month has gone by since the last earnings report for L3Harris (LHX). Shares have added about 3.8% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is L3Harris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
L3Harris Technologies Beats on Q2 Earnings, Tweaks View
L3Harris Technologies second-quarter 2020 adjusted earnings came in at $2.83 per share, which surpassed the Zacks Consensus Estimate of $2.62 by 8%. The bottom line also increased 13% from the year-ago quarter’s $2.51.
Including one-time items, the company reported GAAP earnings of $1.30 per share compared with $2.21 in the year-ago quarter.
The year-over-year downside in GAAP earnings can be attributed to divestiture-related charges, COVID-19-related impacts and amortization of merger-related intangibles.
In the quarter under review, the company’s revenues came in at $4,445 million, lagging the Zacks Consensus Estimate of $4,460 million by 0.4%. However, revenues surged 138% on a year-over-year basis, driven by post-merger inclusion of L3 operations.
Integrated Mission Systems: Net sales at the segment came in at $1,331 million. On a pro forma basis, revenues were up 7.3%,driven by growth in Electro Optical and Maritime units.
Operating income, on a pro-forma basis, came in at $224 million compared with $162 million in the year-ago quarter. Moreover, operating margin expanded 370 basis points (bps) to 16.8%.
Space and Airborne Systems: The segment recorded net sales of $1,249 million in the second quarter, up 23% year over year. On a pro-forma basis, revenues increased 4.1% year over year driven by a ramp up in modernization on the F-35 platform in Avionics and classified growth in Intel and Cyber.
Operating income increased to $235 million from $228 million in the year-ago quarter. Operating margin contracted 20 bps to 18.8%.
Communication Systems: Net sales at the segment rose 83% to $1,112 million. On a pro- forma basis, revenues increased 2.4% year over year due to ramp up in U.S. DoD modernization programs in Tactical Communications and Integrated Vision Systems.
Operating income increased to $265 million from $239 million in the year-ago quarter. Operating margin expanded 180 bps to 23.8%.
Aviation Systems: Net sales at the segment came in at $800 milliondown 17% on a pro-forma basis, on account of COVID-19-related impacts in the commercial aviation business.
Operating income decreased to $31 million from $109 million. Operating margin contracted a huge 740 bps to 3.9%.
As of Jul 3, 2020, L3Harris had $1,947 million in cash and cash equivalents compared with $824 million as of Jan 3, 2020.
Long-term debt as of Jul 3, 2020 was $6,273 million compared with $6,694 million as of Jan 3, 2020.
Net cash inflow from operating activities amounted to $1,335 million at the end of second-quarter 2020 compared with the year-ago cash inflow of $716 million.
L3Harris made some changes to its 2020 guidance. The company continues to expect organic revenues to grow in the range of 3-5% and projects revenues in the range of $18.2-$18.6 billion. The Zacks Consensus Estimate for revenues of $18.6 billion is in line with the higher end of the company provided range.
Adjusted earnings per share for 2020 are still projected in the range of $11.15-$11.55. The Zacks Consensus Estimate for earningsof $11.28 lies below the midpoint of the company’s guidance.
However, the company has decreased its GAAP EPS guidance to the range of $6.03-$6.43 from the previous guidance of $6.95-$7.35.
Operating cash flow and adjusted free cash flow are still expected in the range of $2.8-$2.9 billion and $2.6-$2.7 billion, respectively.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month.
At this time, L3Harris has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
L3Harris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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