Harris Will Benefit From A 'Substantial Increase' In Military Spending, Argus Says

President Donald Trump's commitment to support the U.S. military bodes well for Harris Corporation HRS, according to Argus.

The Analyst

Argus' Mike Jaffe initiated coverage of Harris' stock with a Buy rating and $196 price target.

The Thesis

Harris, a provider of communications and electronic systems to both the government and commercial customers, should benefit from a "substantial increase" in military spending from Trump's March 2018 federal budget agreement, Jaffe said in a note. The company will likely see revenue growth in its Communication Systems that's driven by tactical communications and Electronic Systems, which is driven by strong avionics sales.

Investors could expect "solid" annual earnings growth of 16 percent over the next five year period, which is nearly double the 8.8 percent annual earnings growth its peers are expected to post, Jaffe wrote. The stock warrants a higher valuation, especially as it trades at a PEG ratio of just 1.3, which is notably below the peer average of 2.1. The analyst's $196 price target is based on a PEG ratio of 1.6, which is still below the peer average.

Price Action

Shares of Harris were trading lower by 0.2 percent Wednesday afternoon.

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