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L-3 Communications Wins 2 National Security Contracts - Analyst Blog

Zacks Equity Research

Aerospace and defense giant, L-3 Communications Holdings Inc. (LLL) announced on Jan 30, that its National Security Solutions (“NSS”) business has won two National Security Agency (“NSA”) contracts for Enterprise Program Management ("EPM") valued at $367.3 million.

Spread over a five-year period, L-3 Communications will provide systems engineering, acquisition planning, program management and financial management for two of NSA’s major mission areas. Both the contracts have a ceiling value of $1 billion over the five-year contract life.

For the fourth quarter 2014, L-3 Communications posted adjusted earnings of $2.27 per share, beating the Zacks Consensus Estimate of $2.19 by 3.7%. Reported earnings were also up 11.3% from $2.04 per share in the year-ago quarter (read: L-3 Communications Beats on Q4 Earnings, Revenues).

L-3 Communications’ NSS wing generated net sales of $264 million in the recently reported quarter, down 14.8% from $310 million a year ago. The decrease reflects lower sales from Defense Solutions due to lower demand and reduced contact completion. However, the negatives were partially offset by the company’s acquisition of Data Tactics Corporation, a data analytics and cloud computing solutions provider, in Mar 2014.

The NSS segment could also witness a favorable performance this year as a result of L-3 Communications’ acquisition of MITEQ, Inc., a manufacturer of specialized RF microwave products and SATCOM components for space and military applications.

The acquisition is expected to boost the company’s sales by $55 million in 2015. Barring higher pension expense, L-3 Communications projects a margin improvement at all its segments, particularly at NSS and Aerospace Systems.

In the recent earnings release, L-3 Communications revised its earnings expectation for 2015 to $7.35−$7.65 per share from its prior expectation of $7.50 per share.

Zacks Rank

L-3 Communications currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the aerospace and defense industry include Spirit AeroSystems Holdings, Inc. (SPR), sporting a Zacks Rank #1 (Strong Buy) and The Boeing Company (BA) and API Technologies Corp. (ATNY), carrying a Zacks Rank #2 (Buy).


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