Earnings Scorecard: Harris Corp. - Analyst Blog

Following the fiscal fourth-quarter 2012 (ending June 29) earnings announcement on July 31, 2012, the analysts covering Harris Corporation (HRS) have declared mixed estimate revisions on the stock. The brokers' outlook is based on the belief that the company will perform well over the long term backed by solid growth in the public safety, Healthcare IT and International RF segment. They, however, are apprehensive regarding the U.S., government's decision of slashing its defense sector spending. Fourth Quarter Highlights

On a GAAP basis, quarterly net income was $136.7 million or an income of $1.20 per share, compared with $133.6 million or $1.06 per share in the year-ago quarter. Adjusted EPS of $1.42 was in line with the Zacks Consensus Estimate.

Total revenue of $1,436.2 million was down 5.6% year over year, and also fell short of the Zacks Consensus Estimate of $1,451 million.

Agreement of Analysts

Of the 10 analysts covering the stock in the last 7 days, none have revised their estimates for the first and second quarter of fiscal 2013. Over the past 30 days, seven out of the 10 analysts covering the stock have downgraded the estimates while only one has revised the estimates upward for the first quarter of fiscal 2013. Similarly, for the second quarter of fiscal 2013, four out of the 10 analysts have reduced the estimates while four have revised the estimates upward.

For fiscal 2013, out of the 11 analysts covering the stock in the last 7 days, none have revised their estimates. The revision trend is similar for fiscal 2014 as well, where none of the eight analysts covering the stock have revised their estimates.

Over the last 30 days for fiscal 2013, four out of the 11 analysts covering the stock have lowered their estimates while three have increased the same. Similarly, for fiscal 2014, out of the eight analysts covering the stock, only one has reduced the estimate while two have moved in the opposite direction.

Currently, the Zacks Consensus Estimate for the first quarter of fiscal 2013 is $1.12, with a projected growth of 5.57% year over year. For the second quarter of fiscal 2013, the Zacks Consensus Estimate of $1.23 indicates an annual gain of 0.66%.

Magnitude of Estimate Revisions

As a result of the analysts' reluctance to revise estimates either way over the past 7 days, the Zacks Consensus Estimates for the first and second quarter of fiscal 2013 has remained static at $1.12 and $1.23 per share, respectively. During the last 30 days, the current Zacks Consensus Estimate for the first quarter of fiscal 2013 is 5 cents below our projection of $1.17 earlier while for the second quarter of fiscal 2013 the current Zacks Consensus Estimate is one cent ahead of the earlier estimate of $1.22.

Similarly, for fiscal 2013 and 2014, the current Zacks Consensus Estimates have remained unchanged over the past week at $5.15 and $5.27, respectively. However, the Zacks Consensus Estimate for fiscal 2013 is 2 cents below the earlier estimate of $5.17 in the last 30 days. Similarly, for fiscal 2014, the current Zacks Consensus Estimate is 20 cents ahead of our previous projection of $5.07.

Earnings Surprises

The company has outdone the Zacks Consensus Estimates in all of the four previous quarters. In the fourth quarter of fiscal 2012, Harris Corp earnings were in line with our estimates.

The estimates for the first quarter and second quarter of fiscal 2013 are in line with the Zacks Consensus Estimates. Fiscal 2013, on the flip side contains a downside risk of 0.58% (essentially a proxy for future earnings surprises) while no surprises are expected for fiscal 2014.

Our Recommendation

We believe that Harris Corp will benefit from the international market share gain in the tactical radio communication segment. The company is getting synergies for its land mobile radio business with the acquisition of M/A-COM. Moreover, the acquisition of CapRock Communication gives Harris the opportunity to gain market traction in energy, government and maritime industries. 

However, limited spending in the defense sector from the U.S. government coupled with a slowdown in international defense expenditure appears to be the major threats for the company. As the U.S. Government changes its foreign policy, the company might end up loosing certain international contracts. Stiff competition from rivals Boeing Co. (BA) and General Dynamic Corp. (GD) creates additional pressure on Harris Corp.

Considering these factors, we maintain our long-term Neutral recommendation on Harris Corp. Currently, Harris Corp has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

 

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/