Harris has a strong market position in the government communications sector, with a broad product line and an enviable win rate on government contracts (more than 60% historically). For fiscal 2010, Harris estimated revenues from the tactical radio business to be in the range of $1.4 billion to $1.5 billion. Several industry researches have predicted that tactical radio segment may provide a multi-billion dollar business opportunity to Harris in the next couple of years as overall defense spending is likely to remain firm since upgrading the military’s communications infrastructure remains a priority.

According to our assessment, Harris will benefit in the near term from higher defense expenditure by the U.S. government coupled with new expansion drives in the Asian, European and African markets. The company has established a solid international dealer network to pursue multiyear contracts throughout these regions. Harris has estimated that international markets represent a pipeline opportunity of around $4 billion. The company has won large-scale multiyear standardization contracts in Mexico, Australia, Algeria, the U.K., Pakistan, Sweden and Iraq.

Company Description

L-3 Communications supplies a broad range of products and services used in aerospace and defense platforms.

The company provides various systems, subsystems and products on many, including those for secure networked communications and communication products, mobile satellite communications, information security systems, shipboard communications, naval power systems, missiles and munitions, telemetry and instrumentation and airport security systems.

L-3 is also a prime system contractor for aircraft modernization and operations & maintenance (O&M), Command, Control & Communications (C3), Intelligence, Surveillance and Reconnaissance (ISR) collection systems and services, training and simulation, intelligence services and government support services.

Customers include the U.S. Department of Defense (DoD) and its prime contractors, the U.S. Department of Homeland Security (DHS), U.S. Government intelligence agencies, major aerospace and defense contractors, allied foreign government ministries of defense, commercial customers and certain other U.S. federal, state and local government agencies.

A Recent Contract

The company recently announced that it received a follow-on contract from the U.S. Army's Program Executive Office for Simulation, Training and Instrumentation. L-3 explained that the contract has an estimated value of $48.7 million over the initial base year and four option years. L-3 already received the program's first delivery order, valued at $15.5 million.

Bullish Forecasts

L-3 is seeing higher Zacks Consensus Estimates ahead of reporting next month. The 2009 year forecast of $7.38 per share is up 7 cents over the past 3 month. For the following year, analysts polled by Zacks are calling for earnings of $8.16, representing 11% growth year-over-year.

Results for the third quarter are scheduled for release on October 27.

Strong Quarter

The company reported second-quarter earnings of $1.90 per share, beating the Zacks Consensus Estimate by 7% and surpassing the year-prior total. Net sales jumped 6% to $3.9 billion on a year-over-year basis.

Management expects to continue growing in the second half of 2009, maintaining strong program performance and delivering value for customers.

Leading the Industry

L-3 offers a return on equity (ROE) of 15%, topping the industry average of 12%. The company's net profit margin of 6% is in line with the industry average. L-3 also pays an industry-leading dividend yield of 2%. Zacks Investment Research

Impressed by American Science & EngineeringÂ’s results, I set out to find similar plays, making sure the fundamentals were strong. After browsing several companies, it became evident that my screening strategy should be narrowed down to companies that, like ASEI, provide big ticket items serving industrial markets.

With the use of Research Wizard, I found AZZ incorporated (AZZ) and Teledyne Technologies, Inc. (TDY). I also discovered that all three companies are makers of industrial electronic equipment or components, bringing to mind the only memorable part of the lyrics to the Electric Slide song...”it’s electric.”

These companies, however, are more than just “electric.” A closer look at the fundamentals and technical momentum behind these three stocks reveals that they are also electrifying.

American Science & Engineering, the impetus for this investment idea, boasts a history of contributing innovative technology to the fields of astrophysics, defense, education, medicine and security since 1958. Today, the company provides X-ray inspection systems and continues to innovate, create and develop new products by investing in new ideas through research and development.

American Science & EngineeringÂ’s X-ray inspection systems are used by governments and corporations around the world to combat terrorism, drug and weapons smuggling, illegal immigration, and trade fraud.

Technically, the Zacks #1 Rank (“strong buy”) company looks great. During the past 3 months, it’s share price spiked by 29% as the broader market fell.

The fundamental picture is a little mixed. Earnings misses over the past 4 consecutive quarters look indicate that there is certainly room for improvement. However, rising Wall Street estimates for ASEIÂ’s fiscal second quarter, third quarter and full year signal prosperity ahead. AnalystsÂ’ earnings expectations for the year ending March 2009 were up 1.3% over the past 30 trading days.

For the next 3 – 5 years, the company’s earnings per share are projected to grow by 17.5%.

If the companyÂ’s share price advanced on results that came in below the consensus estimate, should ASEI meet or surpass future forecasts, shares could sky rocket.

AZZ incorporated is a specialty electrical equipment manufacturer serving the global markets of power generation, transmission and distribution and industrial, as well as a leading provider of hot dip galvanizing services to the steel fabrication market nationwide.

Of the three stocks, AZZ has seen the biggest return over the past 3 months as shares jumped 44%.

This company is also a Zacks #1 Rank (“strong buy”). On the fundamental front, the company has done well. It topped Wall Street estimates 3 times out of the past 4 straight quarters, matching the other time. On average, AZZ was ahead of analyst forecasts by 27% during the 4 quarters.

Projections are also on the rise for this pick. For the full year, Wall Street is calling for earnings of $3.00 per share, versus the $2.37 two months ago.

The company’s earnings per share are expected to grow by 12% over the next 3 – 5 years.

Teledyne Technologies provides sophisticated electronic components, instruments & communications products, including defense electronics, data acquisition & communications equipment for airlines and business aircraft, monitoring and control instruments for industrial and environmental applications and components, and subsystems for wireless and satellite communications.

This company, a Zacks #2 Rank (“buy”) has seen a share price rise of 13.5% over the past 3 months.

TDY eclipsed the consensus estimate by an average of 12% over the past 4 consecutive quarters. As the case with the aforementioned, Wall Street sees higher earnings ahead. Analysts hiked full-year expectations by 6% from last monthÂ’s level.

Earnings per share are expected to grow by 14% over the next 3 – 5 years for TDY.
"TDY2" Free Stock Analysis: Buy? Sell? Hold?
"ASE" Free Stock Analysis: Buy? Sell? Hold?
"AZTC" Free Stock Analysis: Buy? Sell? Hold?
Zacks Investment Research