On Apr 11, 2013, shares of L-3 Communications Holdings Inc. (LLL) hit a new 52-week high of $83.99. Earlier, in Jan 2012, the company had reported solid fourth-quarter results with a positive earnings surprise of 6.13%. L-3 Communications registered positive earnings surprises in all the four quarters of 2012, with an average beat of 6.7%.
Operational efficiency, a few valuable acquisitions, plenty of sizeable contracts, strong backlog and an effective cash deployment strategy have helped the company in achieving this high.
L-3 Communications is a leading supplier of a broad range of products and services used in a number of aerospace and defense platforms. Its inventory turnover of 31.31 times, compared to only 3.01 times for the Zacks industry average, represents a strong sign of operational efficiency. In addition, L-3 Communications’ operational effectiveness is evident in its industry-high Return on Investment (“ROI”) of 7.9%.
As of Dec 31, 2012, funded backlog at L-3 Communicationswas $10.9 billion, up 10% year over year. L-3 Communications has a strong balance sheet when compared to its peers with a low long-term debt-to-capitalization of 38.6% versus the Zacks industry average of 43.9%.
Also, L-3 Communications has an effective cash deployment strategy. In 2012, the company deployed $872 million to repurchase shares. In Feb 2013, the board of directors authorized a new share repurchase program allowing the company to repurchase up to an additional $1.5 billion of the company's common stock through Jun 30, 2015. The latest share repurchase authorization represents the company’s sixth buyback program.
Besides share buybacks, L-3 Communications deploys cash by paying regular dividends. In Feb 2013, the company increased its annual dividend for the ninth consecutive time, bringing the annualized payout to $2.20 per share from $2 per share earlier. With the current adjusted closing price of $83.30, the company generates a dividend yield of 2.64%.
Going forward, we expect the incremental dividend and expanded share buybacks to make the stock more attractive for investors. Moreover, the acquisitions of Kollmorgen Electro-Optical business and Thales Group made in 2012 will enhance the company’s market position while expanding its commercial opportunities.
L-3 Communicationscurrently carries a Zacks Rank #3 (Hold). Other stocks to consider are Wesco Aircraft Holdings, Inc. (WAIR), FLIR Systems, Inc. (FLIR) Triumph Group, Inc. (TGI), all with a Zacks Rank #2 (Buy).
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