L-3 Communications (LLL) Up 7.4% Since Earnings Report: Can It Continue?

A month has gone by since the last earnings report for L-3 Communications Holdings, Inc. LLL. Shares have added about 7.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to their next earnings release, or is the stock 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.

L3 Technologies Tops Q4 Earnings, Lifts 2017 View

Defense contractor L3 Technologies posted fourth-quarter 2016 adjusted earnings of $2.38 per share, beating the Zacks Consensus Estimate of $2.12 by 12.3%. Earnings also improved 10.2% from the year-ago figure of $2.16.

For full-year 2016, the company reported adjusted earnings of $8.21 per share, beating the Zacks Consensus Estimate of $7.95 by 3.3%.

Total Revenue

Total revenue of $2.99 billion in the quarter surpassed the Zacks Consensus Estimate of $2.77 billion by 7.9%. Revenues were also up 4.1% year over year.

Organic sales to the U.S. government increased 5%, while that to international and commercial customers were down 0.8%. Overall, organic sales increased 3% in the fourth quarter.

Total revenue of $10.51 billion in the quarter surpassed the Zacks Consensus Estimate of $10.30 billion by 2%.

Orders & Margin

Funded orders in the reported quarter were $3.58 billion, reflecting a 39.7% year-over-year increase. For full-year 2016, the company’s funded orders came in at $11 billion, reflecting an 11.5% increase from the year-ago figure. Funded backlog was $8.9 billion as of Dec 31, 2016, up 5.6% from $8.4 billion as of Dec 31, 2015.

Operating margin expanded 80 basis points (bps) to 12.3% in 2016.

Segmental Performance

Aerospace Systems: Net sales at the segment increased 0.6% to $1,075 million from the prior-year figure of $1,069 million mainly on account of higher sales of Vertex Aerospace and ISR Systems.

Operating income was $57 million, compared to the year-ago number of $61 million, while operating margin contracted 40 bps to 5.3%.

Communication Systems: The segment recorded net sales of $582 million in the reported quarter, down 0.5%. The decrease mainly reflects reduced demand for power devices for commercial satellites.

Operating income improved 1.8% to $58 million, while operating margin expanded 30 bps to 10%.

Electronic Systems: Net sales at the segment improved 9.4% to $1,332 million, primarily due to significant organic sales growth.

Operating income improved 30.7% to $179 million, while operating margin expanded 210 bps to 13.4%.

Financial Position

As of Dec 31, 2016, L3 Technologies had $363 million in cash and cash equivalents, compared with $207 million as of Dec 31, 2015.

Long-term debt as of Dec 31, 2016 was $3,320 million, compared with $3,125 million as of Dec 31, 2015.

Net cash from operating activities was $1, 097 million at the end of 2016, up 2.6% from the year-ago figure. Capital expenditure totaled $216 million, compared with $197 million in the prior year.

2017 Guidance

L3 Technologies has raised its 2017 outlook. The company now expects earnings in the range of $8.40−$8.60 per share (versus the prior range of $8.15−$8.35) with revenues of $10,625 −$10,825 million (versus the prior range of $10,475−$10,675 billion) for 2017.

Moreover, the company expects to generate cash from operations of $1,085 million, up from the prior guidance of $1, 075 million. However, the outlook for resultant free cash flow remains at $865 million, on account of higher capital expenditure.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions

L-3 Communications Holdings, Inc. Price and Consensus

 

L-3 Communications Holdings, Inc. Price and Consensus | L-3 Communications Holdings, Inc. Quote

VGM Scores

At this time, L-3 Communications' stock has a nice Growth Score of 'B', though it is lagging a bit on the momentum front with a 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'B'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and growth investors while momentum investors may want to look elsewhere.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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