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Author: kelbon Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41614  
Subject: Re: Harris Corporation (HRS) Date: 3/15/2013 12:52 AM
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Most companies with exposure to defense spending have been trading at low valuations for a while. The bad news has been priced in. For example, Harris's P/E has been around 10, or below, during the last four years. This is a substantial contraction from what came before. What is also priced in is the expectation of dramatically slowing earnings' growth going forward; on this basis alone lower P/Es are justified.

Harris's return on capital is relatively robust, finances fairly sound, and margins near historical highs. What is making the market nervous is contracting sales; HRS experienced a 5.5% year-over-year sales decline. Never-the-less Harris's bottom line is still slowly growing thanks to aggressive cost cutting and lower operating expenses, this however will only take them so far.

The dividend is probably safe; the pay-out ratio is modest at around 25%. Earnings per share are expected to come in slightly higher than last year's and the company is off to a reasonable start with first quarter earnings besting the same quarter a year ago.

Value Line give Harris A+ for Financial Strength (A++ being highest) and a Safety Ranking of 2 (1 is highest). Provided earnings per share increase modestly, helped by share buybacks, then given the company's valuation and relative predictability, at the present stock price it's likely a reasonable investment, if not a very inspiring on. This, in spite of the fact that the stock price hasn't—as yet—been buoyed by the rapidly rising tide lifting the broader market.

kelbon
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