QUOTE AND NEWS
Benzinga  11 hrs ago  Comment 
Analysts at Oppenheimer upgraded L-3 Communications Holdings (NYSE: LLL) from Market Perform to Outperform. The target price for L-3 Communications is set to $128. L-3 Communications shares have gained 21.65% over the past 52 weeks, while the...
Benzinga  11 hrs ago  Comment 
Market Intelligence Center  Aug 27  Comment 
After Tuesday’s trading in L-3 Communications Holdings Inc (LLL) the option-trade picking algorithms that power MarketIntelligenceCenter.com's Artificial Intelligence Center uncovered a trade that offers a 3.94% return, or 27.66% annualized (for...
DailyFinance  Aug 22  Comment 
Rigrodsky & Long, P.A.: Do you, or did you, own shares of L-3 Communications Holdings, Inc. (NYSE: LLL)?Did you purchase your shares before April 25, 2013, or between April 25, 2013 and July 30, 2014, inclusive?Did you lose...
DailyFinance  Aug 15  Comment 
Former United States Securities and Exchange Commission attorney Willie Briscoe, founder of The Briscoe Law Firm, PLLC, and the securities litigation firm of Powers Taylor LLP announce that a federal class action lawsuit has...
Market Intelligence Center  Aug 12  Comment 
L-3 Communications Holdings Inc (LLL) presents a trading opportunity that offers a 4.67% return in just 67 days. A covered call on L3 Communications at the $105.00 level expiring on Oct. '14 offers an assigned return rate of 4.67% or 25.41%...
Wall Street Journal  Aug 8  Comment 
DynCorp said it dismissed Chief Executive Gordon Walsh, who joined the company last month from L-3 Communications, a rival defense company that last week disclosed accounting problems involving a U.S. Army contract.
DailyFinance  Aug 7  Comment 
The law firm of Lieff Cabraser Heimann & Bernstein, LLP announces that class action litigation has been brought on behalf of those who purchased or otherwise acquired the securities of L-3 Communications Holdings, Inc. ...
Market Intelligence Center  Aug 6  Comment 
A covered call identified by MarketIntelligececenter.com's patented algorithm on L-3 Communications Holdings Inc (LLL) could yield about 4.65% (23.27% annualized, for comparison purposes only) in 73 days. Pair a long position in the stock with the...
newratings.com  Aug 2  Comment 
WASHINGTON (dpa-AFX) - Former Attorney General of Louisiana, Charles Foti, Jr., Esq., a partner at the law firm of Kahn Swick & Foti, LLC or "KSF", said that KSF has commenced an investigation into L-3 Communications Holdings Inc. (LLL). On July...
DailyFinance  Jul 31  Comment 
Glancy Binkow & Goldberg LLP announces that it is investigating potential claims on behalf of investors of L-3 Communications Holdings, Inc. (“L-3” or the “Company”) (NYSE:LLL) concerning possible violations of...




 

L-3 Communications (NYSE:LLL) is a defense company that provides a broad array of products and services ranging from providing information technology (IT) services to repairing aircraft. It is best known for providing secure network communication on many platforms such as satellites, ships, and airports.

Although the U.S. budget for national defense has more than doubled from 2001 to 2008, it is expected to decrease in the upcoming years.[1] Like all defense company, L-3 relies on government spending for most of its earnings - in particular the U.S. Government. In 2009, $13.1 billion of L-3's total $15.6 billion in sales came from the U.S. Government[2]

Relying on others for sophisticated technological work, the U.S. Government has established a trend of outsourcing jobs to the private sector benefiting many private contractors; the number of private federal contractors has soared and is four times bigger than the federal civilian work force.[3] L-3 will continue to benefit from the outsourcing of jobs as long as this trend continues.

Business Overview

Business Financials

L-3s revenue in 2009 was $15.6 billion, a record high.[4] In fact, LLL has been able to increase its revenues for over 13 consecutive years. Much of this growth was driven by the strong demand for network communication systems, security and detection systems, training and other technology products. For 2009, it was able to post a net income of $911 million</ref>

Business Segments

L-3 breaks its operations into four reportable segments: i) C3ISR (Command, Control, Communications, Intelligence, Surveillance and Reconnaissance), ii) Government Services, iii) AM&M (Aircraft Modernization and Maintenance), and iv) Electronic Systems.

C3ISR

The Command, Control, Communications, Intelligence, Surveillance and Reconnaissance (C3ISR) business specializes in secure, high data rate communication systems. It connects various airborne, space, ground and sea-based communication systems and ensures secure transmission of information. Customers include all branches of the military and other U.S. Government agencies, along with other foreign governments. L-3 will supply the communication systems for the Canberra-Class Landing Helicopter Docks to two new Australian amphibious ships, a contract worth $109 million; the system will consist of IT Networks, Data Links, Broadcast and Alarm Systems for the Royal Australian Navy.[5] In 2009, this segment had total sales of $3.1 billion, compared to 2008 total sales of $2.5 billion.[6] As a result, its operating income increased from $244 million in 2008 to $344 million in 2009.[6]

Government Services

The Government Services business provides teaching and training services for aircrews and navigators along with information technology (IT) services. Providing services primarily to the Department of Defense, and other U.S. Government agencies it has landed number 8 on the Top 100 Government IT Contractors list.[7] Contracts are similar to the $326 million Marine Corps contract, in which L-3 will provide a video training system allowing users to view sites under surveillance.[8] In 2009, this segment earned an operating income of $397 million from its revenues of $4.2 billion.[6]

AM&M

The Aircraft Modernization and Maintenance business does exactly as the name suggests, providing aircraft repair, overhaul, and upgrades. It supports platforms such as the P-3 (Orion), a maritime patrol aircraft, the C-130 (Hercules) and C-27J (Spartan), which are both military transport aircraft, as well as the Canadian Maritime Helicopter Project (MHP). For the year of 2009, it earned an operating profit of $243 million from its revenues of $2.8 billion.[6]

Electronic Systems

The Electronic Systems business caters to military and commercial customers in several niche markets. Products include security and surveillance systems for aviation, port and border applications, including those for detection of explosives, concealed weapons, contraband and illegal narcotics. Additionally, L-3 provides airborne traffic and collision avoidance systems (TCAS), cockpit voice and flight data recorders, and rugged displays for military and commercial applications. In 2009, this segment had total sales of $5.5 billion, posting an operating profit of $673 million.[6]

Trends and Forces

The U.S. Government contributes over 85% of L-3 sales

In 2009, $13.1 billion of L-3's total $15.6 billion in sales came from the U.S. Government.[2] Relying on government contracts automatically makes L-3 vulnerable to a notoriously fickle budgeting process and budget cuts. Defense company’s wallets have enjoyed the upswing in government spending; national defense spending has more than doubled from 2001 to 2008. [1] L-3 continues to win important contracts such as the $2 billion C-27J program, a medium-sized military transport aircraft, with a potential backlog of $6 billion; it has a joint venture for the project with Alenia Aeronautica, the aircraft manufacturer, and Boeing.[9]

Outsourcing begets outsourcing

With a significant portion (50%) of the government’s technology workforce soon to retire[10], L-3 will benefit from the government increasingly outsourcing IT jobs to the private sector. As the government witnesses the capabilities of outsourcing and obtains experience in choosing qualified players, it will continue increasing the jobs it sends out to the private sector.

A primary reason for this outsourcing trend is concerns about overspending. Particularly when it comes to aircraft, instead of building new ones, the government would rather have them modernized, meaning repaired and upgraded. As evidence of this trend, L-3 obtained a contract of $18 million from the UK to modernize three C-130K aircraft as well as a $36 million contract from the the U.S. Army for aircraft maintenace.[11] The Department of Defense has seen benefits from outsourcing training programs as well. The Army is not training all of its pilots - it has sent rotary-wing pilot training to the private sector.[12] As governments start sending more and more jobs to the private sector, L-3 is in position to benefit.

Growth through acquisitions brings risks

L-3s diverse portfolio capabilities are a consequence of its growth-by-acquisition strategy. It has acquired over 20 companies in the past five years, spending more than $4.5 billion. L-3s acquisition strategy consists of buying out neglected businesses to strengthen its own business or to open doors in new market areas. Its most costly acquisition was Titan, the US Government’s leading suppliers of linguists and interpreters, acquired in 2005 for $2,736M. However, this acquisition turned out to be more costly than intended as L-3 ended up losing the $4.65 billion linguistic contract it expected to win by having Titan as a subsidiary.[13] L-3 continues its acquisition strategy, albeit more cautiously, spending less than $200M per company in order to bolster its different business markets.

Competitors

Although L-3 relies on governments for most of its income, it does not rely on any single large platform or program like many defense contractors do. The company's competitors range from large defense contractors to smaller IT companies. Its broad capabilities and products lets it compete, either on its own or teaming up with other companies. L-3s capabilities rely on information technology (IT) and its biggest competitors in IT are Honeywell International (HON), Lockheed Martin (LMT), and Raytheon Company (RTN), companies which are also IT driven. L-3 was selected by the U.S. Air Force as a prime contractor to modify and repair weapon systems, a contract value of $6.9B.[14]



References

  1. 1.0 1.1 Budget of the United States Government, Fiscal Year 2009, Pg 89-90
  2. 2.0 2.1 LLL 10-K 2009 Item 1 Pg. 1
  3. Outsourcing Government's Brain, March 30, 2007
  4. LLL 10-K 2009 Item 6 Pg. 30
  5. L-3 Wins Australian LHD Communications Systems Subcontract, January 3, 2008
  6. 6.0 6.1 6.2 6.3 6.4 LLL 10-K 2009 Item 7 Pg. 50
  7. 2008 Top 100 Government IT Contractors
  8. No. 8: L-3 puts its house in order, May 12, 2008
  9. First JCA Flies, June 17, 2008
  10. The US Government's IT Challenge, May 2005
  11. March 28, 2008
  12. Army to outsource rotary-wing pilot training: Flight school XXI is expected to improve overall…, November 1, 2002]
  13. L-3 Out, Dyncorp-McNeil in for $4.65B Iraq Translation Contract?, December 10, 2007
  14. L-3 Selected for Air Force Weapon Systems Support Contract, August 6, 2008
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