L-3 Communications Holdings Inc. (LLL) was awarded an indefinite-delivery/indefinite-quantity contract to supply portable satellite-communications gear to the U.S. Special Operations Command. The anticipated period of performance is not to exceed five years. U.S. Special Operations Command, MacDill Air Force Base, Florida, is the contracting activity.

The guaranteed contract has a minimum value of $7.6 million with a potential value of up to $500 million over the next five years. Work on the contract will be done in Victor, New York.

L-3 Communications Holdings operates through its wholly owned subsidiary, L-3 Communications Corporation. L-3 Communications is a leading supplier of a broad range of products and services used on a number of aerospace and defense platforms. In addition, the company is a prime system contractor for aircraft modernization and maintenance; ISR collection platforms; simulation and training; and government systems support services. The company reported fiscal 2011 sales of $15.2 billion.

Going forward, L-3 Communications expects its revenue for full-year 2012 to be in the range of $14.6 billion to $14.8 billion versus its prior expectation of $14.4 billion to $14.6 billion. The company expects operating margin of 10.1% and EPS in the range of $8.45-$8.60 for fiscal 2012.

L-3 Communications remains a key player within the defense segment and mainly competes with FLIR Systems Inc. (FLIR) and Cyalume Technologies Holdings Inc. (CYLU). We believe it is one of the best-positioned pure defense plays by virtue of its non-platform focus and a broad diversification of programs.

L-3 Communications is strengthening itself by focusing on improvement of operational efficiencies, investing in research and development to provide affordable solutions, acquiring businesses that will add new capabilities and expanding product lines and divesting businesses. Moreover, its broad diversification of programs would provide growth momentum. Going forward, we expect future growth to come from the company’s strong presence in the current focus areas of C3ISR equipment; precision-guided weapons; unmanned aerial vehicles (“UAVs”); and other electro-mechanical robotic capabilities.

However, we are concerned about the loss of key contracts, defense spending cuts and lack of near-term catalysts. Order growth and volume increases also remain dubious in this challenging environment.

L-3 Communications presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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