Harris Slips to Underperform - Analyst Blog
23 Aprile 2013 - 5:50PM
Zacks
We downgrade our recommendation on
Harris Corp. (HRS) to Underperform, ahead of its
third quarter fiscal 2013 financial results, which will be released
on Apr 30, before the opening bell.
Why the
Downgrade?
Harris is suffering from tightness
in the U.S. government spending for defense coupled with a slowdown
in international defense expenditures. The reduction in budget
spending that began last month resulted in delays in tactical radio
procurements coupled with the growing concern that major tactical
radio orders from international markets will be postponed to later
this fiscal or early in the next. We believe that the ongoing
defense budget contraction will continue to affect Harris in the
long run and see no immediate growth catalyst. Harris currently has
a Zacks Rank #4 (Sell).
Major Concerns
Recently, Harris declared its
revised financial guidance for fiscal 2013. On a GAAP basis,
earnings per share are now expected to be within the range of
$3.95–$4.33. The revised guidance for adjusted earnings per share
for fiscal 2013 was $4.60 to $4.70 compared with the prior guidance
of $5.00– $5.20. The first guidance range was $5.10 to $5.30. Total
revenue for fiscal 2013 is now expected to decline by 6% to 7% year
over year compared with the prior estimate of a decline of 2% to
4%.
The main reason for this soft
outlook is weaker-than-expected demand for the company’s tactical
radios from international customers. The U.S. is expected to reduce
its activity in South-East Asia. Furthermore, the ongoing global
macroeconomic headwinds took a toll on the company’s order
bookings. To cope with this juncture, Harris has decided on
curtailing expenses and headcount reduction. These cost-control
measures will result in $65 million to $115 million pre-tax charges
but annual cost savings of $40 million to $50 million.
Other Stocks to
Consider
While we prefer to avoid Harris
until we see signs of improvement in the company's performance,
other stocks in this industry that are worth considering include
Motorola Solutions Inc. (MSI), Sonus
Networks Inc. (SONS) and InterDigital
Inc. (IDCC). All the three stocks carry a Zacks Rank #2
(Buy).
HARRIS CORP (HRS): Free Stock Analysis Report
INTERDIGITL INC (IDCC): Free Stock Analysis Report
MOTOROLA SOLUTN (MSI): Free Stock Analysis Report
SONUS NETWORKS (SONS): Free Stock Analysis Report
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