L-3 Communications (LLL) Stock Is Primed for Another Upside Attempt

The daily price action for L-3 Communications (LLL) looks like a bull flag formation.
By Bruce Kamich ,

NEW YORK (TheStreet) -- L-3 Communications (LLL) - Get Report  has been a volatile issue, trading down towards $100 this summer from over $130 in February. In the past month, LLL has rapidly retraced back up to $130.

There is a lot going on in this short-term chart of LLL, above. There was a dead cross with the 50-day and 200-day moving average in June. In late August and late September prices of LLL make a lower low, but the momentum study in the bottom panel makes a higher low or a bullish divergence. Prices for LLL shot up in October, crossing above the 50-day moving average and then dipping and holding above the average. Near the end of October, prices cleared the 200-day moving average and have been slowly pulling back to that lagging indicator.

This longer-term view of LLL, above, shows LLL in almost a two-year trading range bounded by $100 on the downside and the $130+ area on the upside. The On-Balance-Volume line on this time frame is moving in concert with the price action.

The daily price action for LLL looks like a bull flag formation. LLL has made enough of a pullback and should make another upside attempt very soon, or this bull flag will dissolve into something else. Traders could go long LLL on strength above $125 and add to longs above $133. Use a sell-stop at $118 for now.

TheStreet Ratings team rates L-3 COMMUNICATIONS HLDGS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate L-3 COMMUNICATIONS HLDGS INC (LLL) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. Among the primary strengths of the company is its solid financial position based on a variety of debt and liquidity measures that we have evaluated. We feel its strengths outweigh the fact that the company has had somewhat weak growth in earnings per share.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The debt-to-equity ratio is somewhat low, currently at 0.86, and is less than that of the industry average, implying that there has been a relatively successful effort in the management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.09, which illustrates the ability to avoid short-term cash problems.
  • LLL, with its decline in revenue, slightly underperformed the industry average of 0.9%. Since the same quarter one year prior, revenues slightly dropped by 4.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • After a year of stock price fluctuations, the net result is that LLL's price has not changed very much. Although its weak earnings growth may have played a role in this flat result, don't lose sight of the fact that the performance of the overall market, as measured by the S&P 500 Index, was essentially similar. Despite the stock's decline during the last year, it is still somewhat more expensive (in proportion to its earnings over the last year) than most other stocks in its industry. We feel, however, that other strengths this company displays offset this slight negative.
  • The gross profit margin for L-3 COMMUNICATIONS HLDGS INC is currently extremely low, coming in at 14.34%. Regardless of LLL's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, LLL's net profit margin of -10.61% significantly underperformed when compared to the industry average.
  • Net operating cash flow has decreased to $317.00 million or 18.71% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
  • You can view the full analysis from the report here: LLL

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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