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L-3 Communications (LLL)

Upgrades to 5 STARS (strong buy) from 4 STARS (buy)

Analyst: Richard Tortoriello

Given comments by CEO Mike Strianese reported in the Financial Times today, we believe L-3 plans to slow acquisitions, improve profit margins, and potentially offer itself for sale. Under a recently approved plan, senior officers would receive 1-3 times annual salaries and bonuses on termination in a takeover. Given our view of L-3's strong fundamentals, low valuations, and favorable markets, we view its shares as compelling. We are raising our target price to $100 from $91, based on 17.5 times our 2007 EPS estimate of $5.70, in line with L-3's 5-year average forward p-e.
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