UPDATE: Seaport Global Securities Starts Harris Corp. (HRS) at Buy
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(Updated - November 7, 2016 10:31 AM EST)
Seaport Global Securities initiated coverage on Harris Corp. (NYSE: HRS) with a Buy rating and a price target of $105. Josh Sullivan thinks its valuation gap will close.
"HRS's portfolio of communication equipment includes tactical radios, electronic warfare and satellite sensors, etc. HRS carries a valuation discount to pure-play defense prime peers in large part due to a hybrid-defense/commercial portfolio. However, in 2015, HRS dramatically increased its core defense exposure with the ~$5 billion acquisition of Exelis (XLS). This addition allowed CEO Bill Brown’s 'dispassionate' review of non-core verticals to accelerate, with three divestitures in the last 15 months. JANA's activist position also lends to more divestitures of non-core assets. HRS's acquisition of XLS was timed with the cyclical turn in defense budgets, and while budgets have not recovered as quickly as hoped, they have nonetheless bottomed. HRS set out a target of achieving a $1 billion FCF by year four of the XLS acquisition, and has tracked well against that target with synergies coming in faster than expected/ achieving nearly half of the deleveraging goal. Net/net HRS is organically on track to achieve the $1B FCF target supporting our $105 price target; however, HRS's portfolio transformation, ramping ~$16B JTRS contract and a bottom in the budget cycle point to HRS becoming an acquisition target itself," said the analyst.
Shares of Harris Corp. closed at $94.25 yesterday.
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