The Department of Defense (DoD) awarded a dozen contracts worth $541.2 million day before yesterday. Among the contenders, BAE Systems emerged as the clear winner securing the largest contract worth $150 million. Another defense company, L-3 Communications Holdings Inc. (LLL) managed to secure a modification contract.
The contract is valued at $18.5 million and involves L-3 Communications to work on the M6.2+ Operational Flight Program at the F-16 Mission Training Center through May 31, 2016.
The necessary modernization tasks will be carried out at Arlington, Texas. Air Force Life Cycle Management Center/WNSK, Wright-Patterson AFB, Ohio, is the contracting authority. This brings the total underlying value of the contract to $316.5 million.
Currently, defense companies, which are aggressively developing their technological competence, are emerging as the big contract winners and L-3 Communications is not left far behind. This is evident from the company’s platform and logistics business, which has been a major revenue churner posting 4.9% year-over-year growth in the second quarter.
Modification, support and sustainment systems contracts have lately dominated the company’s order book. Contract flows from international clients have been quiet generous too. In mid-Aug 2013, L-3 Communications clinched a whopping $669 million contract from the Government of Canada to provide complete in-service support services (“ISS”) for the country’s CC-150 Polaris fleet.
The U.S. government also intends to focus more on strengthening its existing defense capabilities which explains the slew of support, maintenance and modifications contracts from the Department of Defense.
We believe the combination of foreign military sales contracts and intermittent low-priced modification contracts in the U.S. will help maintain a stable revenue stream for L-3 Communications.
At the moment, L-3 Communications carries a Zacks Rank #3 (Hold). However, other defense players to look out for are Zacks Ranked #2 (Buy) Raytheon Company (RTN), Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC).
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