Harris’ Contract Wins Impress, Low Federal Spending Bothers

On Dec 30, 2014, we issued an updated research report on Harris Corp. (HRS). The company has retained its revenue and earnings guidance for fiscal 2015.

Notably, Harris has delivered positive earnings surprises in all four quarters of the last fiscal with an average beat of 5.83%. The company successfully retained its winning streak in the first quarter of fiscal 2015, with both the top and the bottom line surpassing the respective Zacks Consensus Estimate.

More recently, Harris won a major contract worth $770 million from the National Geospatial-Intelligence Agency for a period of five years. Prior to that, on Nov 17, 2014, the company signed a C$180 million tactical radio deal with the Canadian Department of National Defense.

Furthermore, the company’s top line is expected to get a boost as the country’s five major airlines are considering restructuring their aircraft with digital Avionics equipment. As per estimations by Harris, pipeline opportunity in the domestic and international markets will likely expand to $1.1 billion and $2.4 billion, respectively, over the coming 12-18 months. Such continuous order wins coupled with strong pipeline activities will certainly act as tailwinds for the company, moving ahead.

However, a major chunk of Harris’ revenues depend largely on government contracts. This can prove to be risky given that the U.S. Department of Defense has decided to reduce its budget by nearly $500 billion over the next decade. In future, any additional Federal budgetary pressures may result in deeper-than-expected cuts in defense spending, which in turn, may significantly impact the company’s business prospects. Furthermore, a shift in the U.S. Government’s foreign policy may also result in the termination of some major international contracts for the company.

Harris currently has a Zacks Rank #3 (Hold).

Stocks that Warrant a Look

Better-ranked stocks worth considering in this sector include ViaSat Inc. (VSAT), Aruba Networks, Inc. (ARUN) and Mitel Networks Corporation (MITL). ViaSat and Aruba sport a Zacks Rank #1 (Strong Buy) while Mitel Networks carries a Zacks Rank #2 (Buy).