TSC Ratings' Updates: Cablevision

We've downgraded L-3 Communications(LLL Quote), which provides command, control, communications, intelligence, surveillance and reconnaissance systems, from buy to hold. Strengths include its revenue growth, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including a decline in the stock price during the past year and poor profit margins.

Revenue increased by 6.2% since the same quarter a year ago, outpacing the industry average of 2% and boosting EPS. L-3 has improved earnings per share by 10.9% in the most recent quarter compared with the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years, which we feel should continue, suggesting improving business performance. During the past fiscal year, L-3 increased its bottom line by earning $5.97 vs. $4.21 in the prior year. This year, the market expects further improvement in earnings to $7.48.

The return on equity has improved slightly when compared with the same quarter one year prior, which can be construed as a modest strength in the organization. On the basis of ROE, L-3 has underperformed the aerospace and defense industry but outperformed the S&P 500. L-3's gross profit margin of 14.7% is extremely low, though it has increased from the same period last year. The 5.8% net profit margin trails the industry average. Shares have plunged by 37.35% compared with where it was selling one year ago, apparently dragged down by the decline we have seen in the S&P 500. Despite the heavy decline in its share price, this stock is still more expensive (when compared to its current earnings) than most other companies in its industry.