Earnings Scorecard: Harris Corp. (HRS)

Harris Corp. (HRS) continues to post solid results supported by a strong demand for its tactical radio products, several government communications products, and excellent operating efficiency. Overall, the analysts’ opinion also remains positive on the stock, given the company’s results. The recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for both the short-term and the long-term outlook for the stock are covered in depth below.

Fourth Quarter Highlights

Consolidated revenues in the fourth quarter were $1,455.9 million, which came below the Zacks Consensus Estimate of $1,491 million, but improved 12.5% year over year. Total orders in the fourth quarter were $1.72 billion compared with $1.29 billion in the prior-year quarter. Adjusted (excluding acquisition-related costs) earnings per share (EPS) of $1.24 were exactly in line with the Zacks Consensus Estimate.

Due to the acquisition of CapRock Communications, the company increased its non-GAAP income from continuing operations guidance for FY11 to a range of $4.60 to $4.70 per diluted share ($4.55 to $4.65 per diluted share on a GAAP basis), representing a year-over-year increase of 4% to 6%. This compares with the previous range of $4.55 to $4.65 per diluted share ($4.55 to $4.65 per diluted share on a GAAP basis). FY11 non-GAAP earnings guidance excludes acquisition-related costs.

FY11 total revenue is now expected to be in the range of $5.9 billion to $6.0 billion, representing a year over year increase of 13% to 15% compared with the prior year. This compares with a previous range of $5.5 billion to $5.6 billion.

Agreements of Analysts

For the first quarter of 2011, the earnings revision trend is positive. Five out of the 13 analysts covering the stock revised their estimates upward, while 3 analysts revised their estimates downward, over the last 30 days. For fiscal year 2011, 8 of the 13 analysts decreased their estimates while none revised their estimates upward, during the same period.

The Zacks Consensus Estimate for the next quarter is also positive. Of the 13 analysts covering the stock, 7 revised their estimates upward, while only 1 analyst moved it downward over the last 30 days. Similarly for the fiscal year 2012, 3 of the 9 analysts revised their estimates upward, while none decreased their estimates.

Harris generated a high level of free cash flow, which is utilized to fund acquisitions, repurchase shares and issue dividends. We believe Harris can generate strong organic revenue growth, going forward. Including internally funded acquisitions and margin expansion potential, the company should be able to sustain a long-term annual earnings growth.

Moreover, the CapRock Communications acquisition is expected to be slightly accretive to Harris’ earnings in FY11, excluding acquisition-related charges, and a more significant contributor to earnings in FY12.

Magnitude of Estimate Revisions

In accordance with the overall trend of estimate revisions for Harris, the Zacks Consensus Estimate for the first quarter 2011 increased by 1 cent in the last 30 days. The Zacks Consensus Estimate for the full year 2011 also increased by 2 cents during the same time period. Similarly, for fiscal 2012, the Zacks Consensus Estimate has gone up by 3 cents.

Our Recommendation

Harris is currently a short-term Zacks Rank #2 (Buy) stock. We believe this is primarily due to the company’s strong market position in several niche communications equipment categories, its favorable near- to long-term outlook and solid finances.

On the other side, Harris depends on the U.S. government contracts for a major part of its revenues. In future, Federal budgetary pressures may result in deeper-than-expected cuts in defense spending, which may significantly impact Harris’ business prospects. Furthermore, a shift in the U.S. government policy in foreign relations may result in the termination of some major International contracts. We, therefore, maintain our long-term Neutral recommendation for Harris.

HARRIS CORP (HRS): Free Stock Analysis Report

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