L-3 Communications Adds 3Di Tech - Analyst Blog

L-3 Communications (LLL), in an attempt to broaden its secure satellite communications exposure, acquired 3Di Technologies. The business will report under the Microwave Group of the company’s Electronic Systems segment.

Headquartered in Hanover, Maryland, 3Di Technologies provides highly specialized end-to-end secure satellite communications utilized by forward-deployed United States special operations and in-theater personnel. 3Di’s products and services are applicable to intelligence, defense and select commercial customers.

3Di Technologies is expected to generate approximately $40 million of revenues in 2010. The Electronic Systems segment reported a slight year-over-year revenue decline of 2.2% in the second quarter. The addition of the acquired business will help the segment to post solid revenues going forward. Also, the acquisition will help L-3 Communications to improve its overall strength in the communication solutions provider arena.

L-3 Communications has made two other acquisitions till date in 2010:

     * Airborne Technologies, a provider of highly specialized aeronautical engineering expertise, manufacturing and operations support for unmanned aircraft systems was acquired on August 4. The acquisition will add $20 million in revenues for the company in 2010.
    * Insight Technology, a manufacturer and developer of mission critical night vision and electro-optical equipment, was acquired on April 14. The acquisition will add $200 million in revenues and will also be accretive to earnings in 2010.

The company reported a solid second quarter with revenues of $3.97 billion and earnings of $1.78 per share.

During the second-quarter conference call, L-3 Communications provided its revenue guidance for fiscal 2010 in a range of $16.0 billion to $16.1 billion. The company also provided earnings per share guidance in the range of $8.05 to $8.25 for full year 2010.

The Zacks Consensus Estimate for third quarter 2010 is earnings of $2.02 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are $8.18 per share and $8.83 per share, respectively.

We expect the acquisitions to complement the company’s initiatives to post solid growth organically. L-3 Communications has entrenched its position as a major defense prime on the strength of its broad diversification of programs, strong order bookings and order backlog, solid cash flow generation and a focus on enhancing shareholder value. However, an expected cutback in defense expenses keeps us on sidelines.

We maintain our “Neutral” recommendation on L-3 Communications. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.

Headquartered in New York, L-3 Communications is a leading provider of Intelligence, Surveillance and Reconnaissance systems and products; secure communications systems; aircraft modernization, training and government services; and is a merchant supplier of a broad array of high technology products. The company competes with the likes of The Boeing Co. (BA), Northrop Grumman Corporation (NOC) and Raytheon Co. (RTN).