L-3 (LLL) May be One Offensive Defense Stock to Watch in FY10
Barron's reported that L-3 (NYSE: LLL) could rally more than 30% in the next year, mostly because it has a big stake in one defense category that is likely to keep growing. The shares, at $76, are selling for just 9.5X estimated FY10 EPS estimates. This represents a 30% discount in the Defense sector.
The U.S. has employed many unmanned aerial vehicles to identify enemies and roadside bombs. The vehicles can fly for half of a day and be controlled remotely, sometimes as far away as Florida.
On the other hand, 80% of L-3's sales are from the U.S. Government, which cut several programs this year including Bradley Fighting Vehicle contract. The Bradley contract could cost L-3 up to $75 million in sales. The company may also lose a $450 million contract to repair and maintain Special Forces helicopters.
$2 billion is scheduled to be spent on C3ISR (command, control, communication, intelligence, surveillance, and reconnaissance), which is another L-3 specialty.
Barron's reports that L-3 is on pace to report $7.51/share for FY09, and $8.01/share profits for FY10. $8,70 is expected for FY11 on fatter margins and higher sales.
The company has a dividend of $1.80/share, and has bought back $800 million of stock in 2008 and $396 million YTD. L-3 also recently refinanced its debt to lower rates.
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