L-3 Communications (NYSE:LLL) is a prime contractor in command, control, communications, intelligence, surveillance, and reconnaissance systems, aircraft modernization and maintenance, and government services. On July 25, 2013, the company reported second quarter earnings of $2.03 per share, which beat the consensus of analysts' estimates by $0.10. The stock is up 19.03% in 2013 and is beating the S&P 500, which has gained 16.10% in the same time frame, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth picking up some more of L-3 Communications right now for the industrial goods sector of my dividend portfolio.
L-3 Communications currently trades at a trailing 12-month P/E ratio of 10.86, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 11.2 is currently inexpensively priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $8.15/share and I'd consider the stock cheap until at least $122. The one-year PEG ratio (5.93), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that L-3 Communications is expensively priced based on a 1-year EPS growth rate of 1.83%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. L-3 Communications boasts a dividend of 2.41% with a payout ratio of 24.7% of earnings while sporting return on assets, equity and investment values of 5.6%, 14% and 10.6%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 2.41% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 10 years with a 5-year dividend growth rate of 15.3% and can continue to do so with its extremely low payout ratio.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle territory with a value of 50.23 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is below the red line with the divergence bars increasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($91.20), I'm looking at $95.97 to act as resistance and $89.98 to act as support for a risk/reward ratio, which plays out to be -1.34% to 5.23%.
- On 25Jul13 the company reported second quarter earnings of $2.03 per share against estimates of $1.93 per share while pulling in $3.2 billion in revenue versus estimates of $3.05 billion.
- On 10Jul13 Deutsche Bank raised its price target on the company stating, "recent IATA air traffic and capacity figures point to modest acceleration", predicting growth in aftermarket sales.
- The company declared a $0.55 per share quarterly dividend with an ex-date of 15Aug13 which will be payable on 16Sep13.
L-3 Communications is inexpensively valued based on future earnings but expensive on future growth prospects (one-year outlook). Financially, the dividend payout ratio is very low and I don't doubt management will be able to continue to increase the dividend in double digits going forward. The technical situation of how the stock is currently trading is what is telling me that it can trade a bit lower for now as the stock has downward trajectory on the RSI and MACD charts. Because it is at such a good value right now I'm going to buy a small batch in the stock for now in hopes that I can get a larger stake at a later date with a higher yield.
Disclosure: I am long LLL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!