Harris Corporation (HRS) reported a better than expected fiscal fourth quarter last night and raised their guidance for the year ahead. These positive results, in addition to some key analyst upgrades today are propelling the stock higher by 15% in Thursday afternoon trading. The Street was expecting Harris to show $.81 in profit for the quarter, but (excluding a one time write-down of goodwill) the company beat those marks by about a dime. More importantly, the company saw orders rebound 22% over the previous quarter, and in all three of the company’s segments. CEO Howard Lance said that the company has won two long term contracts that could provide $1.3 billion in revenue. Free cash flow for the last fiscal year was 33% better than the previous year at $545 million, which is impressive given the economic climate.
Harris tightened the range of expected profit for the coming year to $3.25 to $3.40 from previous guidance of $3.05 to $3.40. Consensus estimates had called for $3.16 of net income for 2010, and many analysts are ramping up those estimates following these results. Furthermore, the company raised the lower end of revenue guidance from $4.9 to $5 billion, with the top end remaining $5.1 billion. Comments made by Harris management point to better a better operating environment in the year ahead. There is support in Congress for Harris’ Falcon III 117G tactical radio program; a program that supposedly could provide about $500 million in revenue over the next two years.
Even though we are reiterating our Undervalued rating on Harris after today’s report, we would advise those buying-in to wait for a pull back. The enthusiasm over yesterday’s earnings release have sent this stock much higher on heavy volume, and chasing after today’s returns is more than likely a sub-optimal strategy. That being said, according to our methodology, we believe that with the current fundamentals Harris could sell for somewhere in the mid $40’s. The company was able to grow revenue at 4% last quarter in a very difficult environment, so if the U.S. government begins to order more going forward, our expectations for price appreciation may ratchet up further.
“Last but not least, Harris Corp., makes devices for the Department of Defense earning 91 cents beat by 9 cents. Strong guidance. Analysts were surprised at the guidance and it looks like U.S. Government military orders are starting to speed up for the company, a lot of analysts thought they were going to start to slow down.”– Fox Business Network 8/13/2009
