Benzinga  May 19  Comment 
RBC Capital Markets changed ratings on three stocks in the defense sector. Lockheed Martin (NYSE: LMT) and Northrop Grumman Corporation (NYSE: NOC) both dowgraded from Outperform to Sector Perform, based on valuation. Upgraded L-3...
Benzinga  May 19  Comment 
Goldman Sachs upgraded Comerica Incorporated (NYSE: CMA) from Sell to Neutral. The target price for Comerica has been raised from $42 to $49. Comerica shares gained 3.43 percent to close at $44.63 on Wednesday. Griffen Securities upgraded...
Forbes  May 11  Comment 
Looking at the universe of stocks we cover at Dividend Channel, on 5/13/16, L-3 Communications Holdings, Inc. (NYSE: LLL), Federal Signal Corp. (NYSE: FSS), and Chemours Co (NYSE: CC) will all trade ex-dividend for their respective upcoming...
Benzinga  May 3  Comment 
L-3 Communications (NYSE: LLL) revealed that its board has declared its regular quarterly cash dividend of $0.70 per share. According to the company, the dividend would be payable on June 15 to its eligible shareholders. The company fixed the...
Benzinga  May 2  Comment 
L-3 Communications Holdings, Inc. (NYSE: LLL) shares gained 1.67 percent to reach a new 52-week high of $133.73. Analysts at Goldman Sachs upgraded Colgate-Palmolive from Sell to Neutral and raised the price target from $62 to $75. Pilgrim's...
Benzinga  May 2  Comment 
Goldman Sachs has upgraded L-3 Communications Holdings, Inc. (NYSE: LLL) to Buy from Neutral on potential margin upside and exposure to nascent defense recovery. Analyst Noah Poponak said the defense contractor has a "collection of assets" that...
Benzinga  May 2  Comment 
newratings.com  Apr 27  Comment 
WASHINGTON (dpa-AFX) - L-3 Communications Holdings, Inc (LLL) reported a profit for its first quarter that advanced compared to the same period last year. The company said its bottom line came in at $164 million, or $2.08 per share. This was...


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.


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]


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.


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]


  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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