Rockwell Wins Air Force Contract – Analyst Blog

Defense contractor Rockwell Collins Inc. (COL) received a contract worth $140 million from the U.S. Air Force to develop, integrate and deliver the Common Range Integrated Instrumentation System (CRIIS), an advanced military test range system. The total value of the contract can exceed $300 million, contingent upon certain conditions.

 

This new CRIIS program will enable the Department of Defense (DoD) to provide vital information relating to Time, Space, and Position Information (TSPI) and system test data to support weapon system testing for a variety of platforms. The CRIIS program will replace the currently operational Advanced Range Data System at major U.S. military test ranges.

 

Rockwell’s advanced technology and open systems approach enable the defense establishments to test and evaluate new systems and implement them more swiftly in operation with a higher degree of confidence.

 

Adjusted earnings of Rockwell at the end of the fiscal third quarter 2010, ending June 30, 2010, were 89 cents a share, compared with 91 cents per share in the year-ago period. The Zacks Consensus Estimates for fourth quarter fiscal 2010, fiscal year 2010 and fiscal year 2011 are 95 cents per share, $3.52 per share and $3.97 per share, respectively.

 

A major portion of Rockwell’s revenue is derived from defense spending of governments worldwide. Even though the company has a broad product reach across multiple platforms, we believe the austerity drive from governments in sluggish macroeconomic times might result in a headwind for future earnings growth.

 

We presently have a Zacks #3 Rank (short-term ‘Hold’ recommendation) on shares. The positive catalysts for the company are its strong balance sheet, incremental dividend and an ongoing share repurchase program. However, given the company’s dependence on international sales, exposure to fixed price contracts and high research and development expenses, we maintain a Neutral recommendation on Rockwell.

 

Based in Cedar Rapids, Iowa, Rockwell Collins engages in the design, production, and support of communications and aviation electronics for its commercial and military customers worldwide.