L-3 Communications Holdings Inc. (LLL) yesterday won a contract from the U.S. Army to provide power generators for the Bradley Fighting Vehicle. The bid, whose financial terms were undisclosed, was awarded to the company’s Combat Propulsion Systems and Magnet Motors units. The company has already started work on the contract and expects to deliver the initial lot of 10 prototypes by the next two fiscal years.

L-3 Communications’ power generators are expected to supply higher electrical power, thereby increasing the vehicles mission loads apart from upgrading integration options for high-capacity auxiliary loads. This order will boost the dwindling order backlog of the company, which in the second quarter of fiscal 2009 fell 20% year-over-year to $3.3 billion.

Headquartered in New York, L-3 Communications is a leading provider of Intelligence, Surveillance and Reconnaissance (ISR) 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. L-3 functions through four primary business segments: Specialized Products; Government Services; Aircraft Modernization and Maintenance (AM&M); and Command, Control, Communications and Intelligence, Surveillance, and Reconnaissance (C3ISR).

L-3 Communications currently is trading at a discount to both the peer group and the S&P 500, based on forward earnings estimates. However we believe that L-3 is one of the best positioned pure defense plays by virtue of its non-platform focus, and broad diversification of programs.

Our bullish outlook for the company and its shareholders is supported by strong performance mainly in the C3ISR and Specialized Products segments, the GLS subcontract and strong operating results and robust cash flow; partially offset by divestitures, higher pension funding, and declining Linguist and CFT revenues. We also expect that L-3’s ongoing share repurchase program will be accretive to earnings over the near-term. We maintain our market Outperform recommendation on the shares.
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