Wall Street analysts are effusive in their praise of

L-3 Communications

(LLL) - Get Report

, a defense communications conglomerate with a $5 billion market cap, saying the company "should trade at a premium valuation to its peers," that its "valuation is compelling" and that it has "a strong balance sheet."

After reviewing L-3's financials, I've concluded that such opinions are sorely misguided. Prudent investors -- even speculative investors -- would likely do well to avoid this stock.

That's my assessment of the stock. Now, let's talk analytic process, stepping back to review the process that I use when reviewing a company's financials, using L-3 as an example.

What are the three steps of Arne's analysis? Find out by clicking here for a free trial to RealMoney. Once you sign up, you can read the rest of his column here -- and also access all of our premium content.

The Turnaround Report

Some current trends that I see in L-3's financials are not sustainable, and I think L-3 is getting close to "hitting the wall." If you're interested in my calculations on this issue (and additional analysis), I'll be including that in the next issue of my newsletter,

The Turnaround Report

. On that matter, I'm not objective at all: I recommend a trial subscription.

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Arne Alsin is the founder and principal of Alsin Capital Management, an Oregon-based investment advisor specializing in turnaround situations. At time of publication, neither Alsin nor ACM held a position in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Alsin appreciates your feedback and invites you to send it to

arne@alsincapital.com.

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