Friday, February 24, 2012
Tuesday, February 7, 2012
Friday, February 3, 2012
It is our recommendation to exit our position in Harris and realize a gain of 15%. Although the company did come out with EPS that beat estimates they missed on margins and top-line revenue. Going forward we see top-line revenue and margins under continued pressure. The cut back in U.S defense spending, will likely lead to the Department of Defense looking for more 'bang for their buck' squeezing margins further. Some risks associated with the company that had not materialized when it was purchased, have since materialized. Weak new orders in the 2QFY12 drove a poor book-to-bill, specifically in the RF segment, and management again revising top-line revenue forecasts down. These material issue have led us to believe that at current levels HRS possesses more downside risk than upside potential.
Thursday, February 2, 2012
Wednesday, February 1, 2012
HRS reported 2QFY12 EPS slightly ahead of consensus, as better-than-expect margins offset revenue miss. HRS full-year FY2012 EPS guidance was reiterated, but top-line outlook was reduced. This marks the third time in the past four quarters that the revenue outlook has been reduced as RF segment struggles to find significant contracts given the winding-down of the United States’ involvement in foreign wars and considerable cuts in US defense spending.
2QFY12 EPS was $1.22 compared to consensus of $1.18. Revenue of 1.4bn was below consensus of $1.51bn. Net income for HRS fell to $133.1mn or $1.16 per share versus $151.1mn or $1.18 per share. This is a decline of 11.9% yoy. New orders in the quarter of $1.2bn were down 15% yoy and 26% sequentially, driving a book-to-bill of 0.83x. RF order declined 50% sequentially to $268mn from $514mn for a book-to-bill of 0.50x. Management reiterate HRS full-year adjusted EPS guidance of $5.10-$5.30(which compares to consensus of $5.12), but lowered its revenue guidance to $6.0bn from a previous range of $6.15bn to $6.3bn.
We still hold the same favorable view on the company’s competitive positioning and superior technology, as well as the belief that the new CEO will be able to leverage underperforming businesses and drive profits. However, we are concerned with declining top-line numbers and weak new orders, specifically in the RF segment.
Shares of HRS reacted favorable to the earnings beat trading up ~5% Wednesday. Analyst at UASBIG will continue to monitor HRS closely and are currently in the process of re-evaluating our position in the company. Harris has returned ~13% since its inception into the portfolio.