On March 31, 2014, we issued an updated research report on Harris Corporation (HRS). The company reported mixed financial results for the second quarter of fiscal 2014. However, improved foreign defense expenditure, a strong tactical radio order pipeline and growth in the Government Communication segment are likely to act as catalysts for the company moving ahead.
Harris Corporation has delivered positive earnings surprises in the last four quarters, with an average positive surprise of 12.22%.
Harris’ RF Communications segment is gaining momentum in international markets and this trend is likely to continue since its next-generation Falcon III tactical radio is gaining market. Moreover, the company has raised its earnings outlook for 2014, mainly attributable to 3% annual growth in international military spending.
The Government Communication segment generated 1% revenue increase on strong growth in the classified and space customers. It received orders worth $121 million, $46 million and $31 million from classified customers, FAA and avionics infrastructure, respectively. Such positives have encouraged a fiscal 2014 revenue outlook upgrade for the segment to 1–3% from 5–7%.
However, Harris maintained its guidance at a 1–3% drop in revenues in fiscal 2014 from fiscal 2013. The main reason for this soft outlook is weaker-than-expected demand for the company’s tactical radios. The tightness in the U.S. government spending for defense coupled with delays in several key international order procurement, which has been postponed to early next year, has led to such a tepid guidance.
Harris depends on the U.S. Government contracts for a major part of its revenues. The Defense Department has decided to reduce 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.
Harris Corporation currently carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Other better-ranked stocks worth considering in this sector include Juniper Networks, Inc. (JNPR), Nokia Corporation (NOK) and ShoreTel, Inc. (SHOR). All these stocks sport a Zacks Rank #1 (Strong Buy).