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Rockwell Collins Stays Neutral

Zacks Equity Research

On Nov 21, 2013, we have reiterated our Neutral recommendation on Rockwell Collins Inc. (COL). The company currently has a Zacks Rank #3 (Hold).

Why the Reiteration?

Rockwell Collins’ earnings in the fourth quarter of fiscal 2013 were $1.28 per share, lagging behind the Zacks Consensus Estimate by 3 cents. On a year-over-year basis, earnings per share jumped 20.8% on the heels of lower share count and absence of restructuring and asset impairment charges. The company’s total sales edged down 1.1% year over year to $1,252 million. However, quarterly revenues surpassed the Zacks Consensus Estimate by $28 million. A decline in sales in Government Systems was partially offset by higher sales in Commercial Systems.

We appreciate Rockwell Collins’ efforts towards managing risks related to the ongoing defense budget sequestration. The company is currently focusing more on expanding its international businesses, which will in turn help to secure stable revenue stream going forward. In addition, the company is upgrading its core competence while engaging in innovation.

Rockwell Collins is also taking several initiatives including steady share repurchase program and payment of dividend at regular intervals, to maximize shareholders’ wealth. In fiscal 2013, the company distributed $164 million to its shareholders as cash dividend. During fourth-quarter of fiscal 2013, the company repurchased 0.9 million shares of common stock worth $62 million. These initiatives will enable Rockwell Collins to attract more investors.

Despite the aforesaid positives, we remain cautious about the company’s short-cycle products, the U.S. government’s delayed funding authorizations, program execution risk and high exposure to fixed price contracts. These negatives may to some extent challenge Rockwell Collins’ future performance.

Other Stocks to Consider

Stocks in the sector that are currently performing well include Alliant Techsystems Inc. (ATK) with a Zacks Rank #1 (Strong Buy), and Exelis Inc. (XLS) and Hexcel Corporation (HXL) with a Zacks Rank #2 (Buy).

Read the Full Research Report on COL
Read the Full Research Report on ATK
Read the Full Research Report on HXL
Read the Full Research Report on XLS

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