L-3 Communications Holdings Inc. (LLL) authorized a new share repurchase program to buy back up to $1 billion of the company’s common stock through Dec 31, 2012. This new share repurchase authorization is effective immediately. L-3 Communications’ focus on buyback is evident from the fact that its average shares outstanding decreased 5 million shares, or 4%, at fiscal-end 2009 as compared to fiscal-end 2008.
As of first quarter-end of 2010, L-3 Communications’ had a low long-term debt-to-capitalization of 37.7% (Zacks industry average was 92.9%) with a total long-term debt of $3.4 billion along with cash holdings of $1.1 billion and an unutilized credit facility close to $968 million. However long-term debt solely consists of low-cost bonds with coupon rates ranging within 5.2% – 6.4%. Of this, only $400 million matures in 2013. The company’s strong balance sheet provides financial flexibility in matters of incremental dividend, ongoing share repurchase and earnings accretive acquisitions.
L-3 Communications stand out among pure defense players by virtue of its non-platform focus, broad diversification of programs, strong order bookings, and order backlog of more than $10.8 billion at the end of the first quarter of fiscal 2010. Revenue and earnings growth continues to be driven by its strong presence in the current focus areas of command, control, communications, intelligence, surveillance and reconnaissance equipment; precision-guided weapons; unmanned aerial vehicles; and other electro-mechanical robotic capabilities, networked information technologies, special operations forces, and missile defense.
L-3 Communications’ top line is spread over a large number of contracts in process. At fiscal-end 2009 the company had 2,358 contracts in process which increased to 2,436 in the first quarter of fiscal 2010. Also in fiscal 2009, its largest contract in terms of annual sales was the Special Operations Forces Support Activity contract, which accounted for approximately 3% of its sales. A diversified revenue base insulates the financial performance of the company from any contract-specific risk.
L-3 Communications’ is slated to release its second quarter results of fiscal 2010 on July 27, 2010. The Zacks Consensus Estimate for the quarter currently stands at $1.94, higher than the year-ago quarterly earnings of $1.90. The Zacks Consensus Revenue Estimate for the ongoing quarter is seen little above $4 billion, up 2.8% year over year.
L-3 Communications’ revenue growth is expected to be partially affected in the present quarter due to lower revenues year-over-year from Linguist, Communications Electronics Command task orders and the Bradley Fighting Vehicle programs.
We currently have a Neutral recommendation on the Zacks #3 Rank stock. In the near-term we would advise investors to focus on Zacks #2 Rank (Buy) peers like FLIR Systems Inc. (FLIR).
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