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In this article, I will feature one industrial goods company that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

L-3 Communications Holdings (NYSE:LLL) provides command, control, communications, intelligence, surveillance, and reconnaissance systems; aircraft modernization and maintenance; and national security solutions in the United States and internationally.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of L-3 Communications Holdings' insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Susan OppSVPOct 3149,097No20,057 shares71.0%
John McNellisSVPOct 3146,947No17,715 shares72.6%
Steven PostSVPOct 3124,041No19,269 shares55.5%

There have been 120,085 shares sold by insiders during the last 30 days. More details about the Rule 10b5-1 trading plan can be found from this link.

Insider selling by calendar month

Here is a table of L-3 Communications Holdings' insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
October 2013120,0850
September 201300
August 2013233,3820
July 2013193,0610
June 201300
May 201315,9370
April 20138,0990
March 201300
February 2013102,4780
January 201300

There have been 673,042 shares sold and there have been zero shares purchased by insiders this year.

Financials

L-3 Communications Holdings reported the third-quarter (PDF) financial results on October 29 with the following highlights:

Revenue$3.0 billion
Net income$204 million
Cash$377 million
Debt$3.6 billion

(click to enlarge)

(Source: Third-quarter earnings presentation (PDF))

Outlook

L-3 Communications Holdings' guidance for full-year 2013 is as follows:

(click to enlarge)

(Source: Third-quarter earnings presentation (PDF))

Competition

L-3 Communications Holdings' competitors include AAR Corp. (NYSE:AIR), and Cubic Corporation (NYSE:CUB). Here is a table comparing these companies.

CompanyLLLAIRCUB
Market Cap:8.93B1.12B1.41B
Employees:51,0006,3008,200
Qtrly Rev Growth (yoy):-0.09-0.07-0.07
Revenue:12.93B2.10B1.38B
Gross Margin:0.100.150.24
EBITDA:1.56B185.50M137.57M
Operating Margin:0.100.050.08
Net Income:794.00M52.90M79.06M
EPS:8.621.382.96
P/E:11.6921.1317.88
PEG (5 yr expected):5.821.182.14
P/S:0.690.541.03

L-3 Communications Holdings has the highest PEG ratio among these three companies.

Here is a table of these competitors' insider-trading activities this year.

CompanyInsider buying / sharesInsider selling / shares
AIR098,474
CUB02,662,250

Only L-3 Communications Holdings has seen intensive insider selling during the past 30 days.

Conclusion

There have been three different insiders selling L-3 Communications Holdings and there have not been any insiders buying L-3 Communications Holdings during the past 30 days. All three of these insiders decreased their holdings by more than 10%. L-3 Communications Holdings has an insider ownership of 0.80%.

L-3 Communications Holdings is trading at a P/E ratio of 11.69 and a forward P/E ratio of 12.30. L-3 Communications Holdings has a book value of $62.29 per share.

Before entering short L-3 Communications Holdings, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high PEG ratio and the intensive insider selling activity.

Source: Insiders Are Selling L-3 Communications Holdings