Tags: Harris | defense | cutbacks | HRS

Harris Seen Well Positioned, Despite Defense Cutbacks

By    |   Monday, 02 Jul 2012 02:55 PM

Harris (HRS), like many firms involved in U.S. Department of Defense contracting, faces a tough row to hoe in the coming months as spending again comes to the political fore. Nevertheless, analysts say, the company is well positioned to benefit from increased spending on communications technology, despite the potential for defense cutbacks.

Harris is an international communications and information technology company serving government and commercial markets in more than 150 countries. It develops communications products, systems and services for global markets, including RF communications, integrated network solutions and government communications systems.

Harris reports in three operating segments: RF Communications, comprised of U.S. Department of Defense and International Tactical Communications and Public Safety and Professional Communications

Secondly, an Integrated Network Solutions segment, comprised of IT Services, Managed Satellite and Terrestrial Communications Solutions, Healthcare Solutions, Cyber Integrated Solutions and Broadcast and New Media Solutions.

Finally, a Government Communications Systems segment, comprised of Civil Programs, Defense Programs and National Intelligence Programs.

Foreign sales or exports accounted for 22 percent of total revenues in fiscal 2011, the company reported. Sales to U.S. government customers came to 72 percent of sales.

A year ago, the Harris board approved a $1 billion share buyback program and increased the dividend rate to 28 cents per share, up from 25 cents. It now pays 33 cents, yielding recently 3.15 percent.

Harris has a market cap of $4.76 billion in a sector, communications equipment, where the average company size is $4.62 billion. Its trailing 12-month P/E ratio is 39.11 and its five-year projected price-to-earnings-growth (PEG) ratio is 14.76, compared to 1.54 for the sector.

Its projected earnings per share growth for the coming year is negative 0.58 percent, compared to a sector average of 16.50 percent.

Long-term trends

Analysts are positive on HRS, with buy or outperform calls from Needham & Company and Standard & Poor’s Equity Research.

“While we think HRS will see a modestly negative impact from efforts to lower U.S. military spending, we think long-term trends favor growth in its core segments. We see HRS benefiting as local and federal government agencies focus on improving the technological capabilities of their communications systems,” S&P analysts wrote in a recent report on the stock.

“We believe HRS has a strong balance sheet and generates strong cash flow to support its late 2011 dividend increase and planned share repurchases.”

Harris next reports on July 31.

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