L-3 Comm Gets Air Force Contract - Analyst Blog

L-3 Communications Holdings Inc.'s (LLL) Systems Field Support (SFS) division was awarded an initial $8.6 million contract by the U.S. Air Force Air Education and Training Command (AETC) to provide trainer maintenance and precision measurement and equipment laboratory (PMEL) support. The total value of the five year contract if all options are exercised will be approximately $53 million.

Under this contract, L-3 Communications will support AETC's Training Wing in Texas. The company will provide maintenance and operations support to aircraft trainers, ground instructional training aircraft, civil engineering trainers, PMEL, munitions storage areas, aerospace ground equipment (AGE) and associated support equipment.  

L-3 Systems Field Support division provides aerospace and defense support services specializing in the delivery of integrated contractor logistics support for aircraft, ground vehicles and other defense systems. L-3 Systems Field Support is headquartered in Madison, Mississippi.

Headquartered in New York City, L-3 Communications is a prime contractor for C3ISR (Command, Control, Communications, Intelligence, Surveillance and Reconnaissance) 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 platforms.

L-3 Communications stands out among pure defense players by virtue of its non-platform focus, its prominent position as sub-contractor/supplier to other defense primes, its broad diversification of programs, strong order bookings and an order backlog of approximately $10.8 billion at the end of the first nine months of fiscal 2010. The company is slated to benefit greatly from the $725 billion defense bill for fiscal 2011.

Revenue and earnings growth continues to be driven by its strong presence in the current focus areas of command, control, communications, intelligence, surveillance and reconnaissance (C3ISR) equipment; precision-guided weapons; unmanned aerial vehicles (UAVs); and other electro-mechanical robotic capabilities.

L-3 Communications' strong balance sheet provides financial flexibility in matters of incremental dividend, ongoing share repurchase and earnings accretive acquisitions. At the end of the first nine months of 2010, the company had a low long-term debt-to-capitalization of 32.9% (Zacks industry average was 93.5%) with a total long-term debt of $3.4 billion, along with cash holdings of approximately $650 million and an unutilized credit facility close to $973 million.

In the first nine months of 2010, L-3 Communications already acquired three companies. In April 2010, it acquired a manufacturer of mission critical night vision and electro-optical equipment, Insight Technology Incorporated. Then in August it acquired Airborne Technologies Inc. boosting it's in –house capabilities for unmanned aircraft systems. Lastly in September, specialized communications provider 3Di Technologies was acquired by the company.

The acquisitions have broadened its product line, raised its expertise in niche fields, and expanded its reach to customers with specialized needs in the defense industry.

L-3 Communications mainly competes with FLIR Systems Inc. (FLIR), and Herley Industries Inc. (HRLY). We currently have a ‘Neutral' recommendation on the Zacks #3 Rank stock.