Analyst Sees $11 In Annual EPS For L-3 Communications By 2020

Baird sees L-3 Communications Holdings, Inc. LLL to deliver EPS of above $11 in 2020 on strong top-line growth and stable margins at its Aerospace, Electronic Systems and Communication Systems units.

L-3's expertise lies in the areas of broadband communications and sensors, specializing in defense electronic systems and components.

"We believe the combination of rising defense budgets, a solid portfolio, margin improvements, and a shareholder friendly/respected management team should continue to drive LLL to new highs," analyst Peter Arment wrote in a note.

Arment noted that the company generates more than 70 percent of its sales from DoD/U.S. Government and 45 percent of total sales are tied to the Operations and Maintenance budget, which provides stable demand.

Arment estimates L-3's sales should at least expand in line with the industry growth rates in the low-to mid-single digits given a rising DoD budget.

Further, the company has plenty of opportunity to improve margins both from mix as well as productivity and cost-savings initiatives.

Arment, who started coverage of the stock with an Outperform rating and $184 price target, expects 2017-2020 EPS of $8.60, $9.55, $10.40 and $11.40.

The analyst also anticipates L-3 to average free cash flow conversion to net income of 130 percent over the next four years, resulting in $4.0 billion in cumulative FCF during 2017-2020.

"LLL remains a core portfolio stock and pullbacks are to be bought for the long term," Arment added.

At time of writing, shares of L-3 rose 1.26 percent to $152.34.