Platform Integration division of L-3 Communications (LLL) has received a contract to begin low rate initial production (LRIP) for the EP-3E Spiral 3-configured aircraft of the U.S. Navy. Under the LRIP program, L-3 will manufacture and install new capability on three EP-3E aircraft.
EP-3E Spiral 3-configured aircraft is an upgraded intelligence, surveillance and reconnaissance mission avionics suite. As a part of the Spiral 3 modification, L-3 will install state-of-the-art communications intelligence equipment and will replace old and obsolete sensors. Additionally, it will increase the aircraft’s networking capabilities.
After the successful completion of developmental testing using the L-3-modified prototype EP-3E Spiral 3-configured aircraft, the U.S Navy decided to use the LRIP program. However, the project is undergoing an operational test phase after which a full-rate production decision will be made regarding the modifications of the remaining aircraft in the EP-3E fleet to the Spiral 3 configuration.
The LRIP is a term commonly used in military weapon programs to designate the phase of initial, small-quantity production of weapons systems. By a process of thorough testing, this program gives confidence to the prospective first buyer and operator that the system actually performs to the agreed-upon requirements.
The company is one of the best-positioned pure defense players based on its non-platform focus, broad diversification of programs, strong order bookings and order backlog, robust cash flow generation and its focus on shareholder value.
However, the positives are offset by the loss of key contracts, a backlog skewed toward fixed price contracts and apprehensions over defense spending cuts under the Obama administration. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. In the near term, we would advise investors to accumulate its short-term Zacks #2 Rank (Buy rating) peer like Raytheon Co. (RTN).
The company is expected to release its first quarter 2011 earnings results on April 21, 2011. Going forward, the Zacks Consensus Estimates for first quarter 2011 and fiscal year 2011 are currently at 1.81 per share and $ 8.42 per share, respectively.
The Platform Integration division provides complex integration services for military, commercial and OEM customers at its aircraft integration facility in Waco, Texas. Based in New York City, L-3 Communications is a prime contractor in C3ISR systems, aircraft modernization and maintenance, and government services. L-3 is also a leading provider of a broad range of electronic systems used on military and commercial platform.
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