) -- Investors scooped up large-caps in defensive sectors yesterday, boosting the
Dow Jones Industrial Average
. If you were long guns and cigarettes, it was a profitable day. These companies hit 52-week highs.
3. L-3 Communications Holdings
jumped 3.1% to $83.26. The chief executive of the New York-based aerospace and defense company expects the company to profit from the planned surge in military action in Afghanistan.
: Third-quarter net income increased 19% to $250 million and earnings per share climbed 25% to $2.12. Revenue grew 5% to $3.8 billion. L-3's gross margin declined from 15% to 14%, but its operating margin remained steady at 11%. A quick ratio of 1.3 demonstrates adequate liquidity. L-3's 0.7 debt-to-equity ratio indicates reasonable leverage.
: We rate L-3 Communications "buy." Unlike many of its peers, L-3 expanded during the recession. During the past three years, revenue has grown 9% annually, on average, and net income has advanced 23% a year. L-3 shares are cheaper than those of defense peers based on trailing earnings, projected earnings, book value, sales and cash flow.
2. Reynolds American
ascended 1.7% to $53.94. The tobacco company agreed to acquire
, a Swedish maker of nicotine replacement therapies, for $44 million.
: Third-quarter profit surged 72% to $362 million, or $1.24 a share, as revenue dropped 5% to $2.2 billion. Reynolds American's gross margin increased from 47% to 48%, and its operating inched up from 29% to 30%. Around $2.5 billion of cash and a quick ratio of 0.7 reflect less-than-ideal liquidity. But the company's 0.7 debt-to-equity ratio is below the industry average, indicating restrained leverage.
: We rate Reynolds American "buy." Although regulatory interference is an ongoing risk, Reynolds offers a fundamentally sound investment. Its 6.6% dividend yield is higher than those of benchmark averages and many peers. Reynolds shares are cheap based on all of our valuation measures. Income-oriented investors should take a closer look.
climbed 2.1% to $55.82. The aerospace and defense company said its long-delayed 787 Dreamliner flight could take place within the next week.
: Boeing swung to a third-quarter loss of $1.6 billion, or $2.22 a share, as revenue grew 9% to $17 billion. The company's gross margin fell from 21% to 16%, and its operating margin descended from 7% into negative territory. Boeing's balance sheet is in disrepair. A negative shareholders' equity tally and $11 billion of debt are signals of poor fiscal management. A quick ratio of 0.4 indicates weak liquidity.
: We rate Boeing "hold." Although Boeing remains a top aerospace and defense company based on quality of products and longevity of contracts, its fiscal situation limits its rating. Its shares are undervalued compared to aerospace and defense averages and the overall market, but there are more attractive growth plays within the sector.
-- Reported by Jake Lynch in Boston.