HRS Harris Corp.

Harris Corp. (HRS) reported mixed second quarter 2012 financial results, where earnings per share (EPS) beat the Zacks Consensus Estimate but revenues missed the same.

First Quarter Highlights

Reported GAAP net income in the quarter was $133.1 million or $1.16 per share compared with $151.1 million or $1.18 per share in the year-ago quarter. Quarterly adjusted (excluding acquisition related cost) earnings per share (EPS) of $1.22 surpassed the Zacks Consensus Estimate by 4 cents.

Consolidated revenue in the reported quarter was $1,446.4 million, up 0.55% year over year but below the Zacks Consensus Estimate of $1,509 million. Despite the slowdown in the government expenditure, the year-over-year increase in revenue was primarily driven by higher shipments of tactical radios in order to upgrade MRAP vehicles. Cost of sales in the second quarter of fiscal 2012 was $933.9 million compared with $940.5 million in the prior-year quarter.

Agreements of Analysts

Out of the 12 analysts covering the stock in the last 7 days, only one analyst revised the estimate for the third quarter of 2012, while none revised the estimates upward for the same period. Likewise, for the fourth quarter of 2012, one analyst increased the EPS estimate but none moved downward.

For fiscal 2012, out of the 12 analysts, none revised the EPS estimates for the period. Similarly, for fiscal 2013, none out of the 11 analysts revised the estimates.

Currently, the Zacks Consensus EPS Estimate for the fourth quarter of 2012 is pegged at $1.33 per share with a projected annual growth rate of 14.94%. Similarly, for the fourth quarter of 2012, the current Zacks Consensus EPS Estimate of $1.54 per share indicates a gain of 23.79% year over year.

Magnitude of Estimate Revisions

During the last 7 days, the current Zacks Consensus Estimate for the third quarter of 2012 remained unchanged at $1.33. However, for the fourth quarter of 2012, the current Zacks Consensus Estimate is pegged at $1.54, which is just a penny above the previous estimate. Similarly, for fiscal 2012, in the last 7 days, the current Zacks Consensus Estimate dipped by a penny to $5.15 while for fiscal 2013, the current Zacks Consensus Estimate remained flat at $5.35.

Earning Surprises

With respect to earnings surprises, the company notched up an average earnings surprise of 1.51% in the trailing four quarters. Both the ongoing quarter and the upcoming quarter contain a downside potential of (essentially a proxy for future earnings surprises) 0.00% and 1.30%, respectively. Likewise, for fiscal 2012 and fiscal 2013, the Zacks Consensus Estimates downside risks are 0.19% and 1.12%, respectively.

Our Recommendation

Accretive share repurchase plan coupled with huge order backlogs will act as positive catalysts for the stock going forward. However, intense competition from the likes of Boeing Co. (BA), General Dynamics Corp. (GD) and Raytheon Co. (RTN) will put Harris on the back foot. We thus maintain our long-term Neutral recommendation on Harris Corp.

Currently, Harris Corporation has a Zacks #3 Rank, implying a short-term Hold rating on the stock.

About Earnings Estimate Scorecard

Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at: http://www.zacks.com/education/

 
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