Harris Remains at Neutral - Analyst Blog
20 Febbraio 2013 - 7:15PM
Zacks
We reiterate our long-term Neutral recommendation on
Harris Corp. (HRS) following its mixed financial
results in the fourth quarter of fiscal 2013. While earnings per
share easily surpassed the Zacks Consensus Estimate, revenue fell
short of the same.
Why Keeping at Neutral?
Harris is facing several near-term concerns as the contraction
of the U.S. and international defense expenditures may act as major
threats to the company. Though management remains confident that
the company’s consolidated pipeline opportunity is still intact, we
are not sure exactly when these contracts are going to be
realized.
In order to minimize the negatives of defense budget
contraction, management is emphasizing other business verticals
including, IT transformation of the healthcare industry, public
safety communications, and maritime communications.
Nevertheless, Harris is currently trading at attractive
multiples with respect to several valuation metrics compared with
the industry average and S&P 500. Harris currently has a Zacks
Rank #3 (Hold).
Risk/Reward Virtually Balanced
Harris depends on the U.S. Government contracts for a major part
of its revenue. The Department of Defense has decided to squeeze
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 policy in foreign
relations may result in the termination of some major international
contracts. Additional risks may emanate from large long-term
fixed-priced contracts if costs escalate beyond contract
pricing.
However, demand for the RF Communications products in the
International markets is likely to remain firm since Harris’
next-generation Falcon III tactical radio is receiving increasing
market traction. At the end of the reported quarter, order backlog
came in at $1.142 billion including $561 million in Tactical Radio
Communications and $581 million in Public Safety and Professional
Communications.
Management estimated that within the U.S., in the coming 12-18
months, the opportunity pipeline is $1.2 billion and for the
international market, the opportunity pipeline is $2.4 billion.
Other Stocks to Consider
Other stocks to consider in the communications and information
technology provider for government and public utility segment are
The Boeing Co. (BA), General Dynamics
Corp. (GD) and Motorola Solutions Inc.
(MSI). Boeing currently has a Zacks Rank #2 (Buy), whereas both
General Dynamics and Motorola Solutions carry a Zack Rank #3
(Hold).
BOEING CO (BA): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
HARRIS CORP (HRS): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
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