NEW YORK (
) has been downgraded by TheStreet Ratings from buy to hold. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and poor profit margins.
Highlights from the ratings report include:
- L-3 COMMUNICATIONS HLDGS INC has improved earnings per share by 15.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, L-3 COMMUNICATIONS HLDGS INC increased its bottom line by earning $8.26 versus $7.61 in the prior year. This year, the market expects an improvement in earnings ($8.72 versus $8.26).
- The current debt-to-equity ratio, 0.60, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.35, which illustrates the ability to avoid short-term cash problems.
- LLL, with its decline in revenue, slightly underperformed the industry average of 2.6%. Since the same quarter one year prior, revenues slightly dropped by 5.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- LLL has underperformed the S&P 500 Index, declining 7.90% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
- Net operating cash flow has declined marginally to $299.00 million or 5.97% 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.
L-3 Communications Holdings, Inc. provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally. The company has a P/E ratio of 7.5, equal to the average aerospace/defense industry P/E ratio and below the S&P 500 P/E ratio of 17.7. L-3 has a market cap of $6.8 billion and is part of the
industry. Shares are down 10.6% year to date as of the close of trading on Tuesday.
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