Yesterday, Harris Corp. (HRS) ,a leading manufacturer of telecom equipment and IT solutions, provided an excellent financial outlook for its next fiscal year (fiscal year 2012).
Management predicted its fiscal 2012 non-GAAP EPS to be within the range of $5.10 to $5.20. Its mid-point of $5.15 is miles ahead of the current Zacks Consensus Estimate of $4.96. If the company’s prediction comes true, it will be an improvement of 5%-7% over its ensuing fiscal 2011 non-GAAP EPS guidance of $4.80 - $5.90.
Harris approximated its fiscal 2012 total revenue within the range of $6.4 billion - $6.6 billion. Its mid-point of $6.5 million is also well above the current Zacks Consensus Estimate of $6.2 billion. Fiscal 2012 revenue guidance is an improvement of 7%-10% over Harris’ ensuing fiscal 2011 revenue projection of $5.9 billion - $6.0 billion.
As a leading government electronics supplier, Harris is benefiting from the increase in the U.S. defense expenditure as well as strong International market conditions. In fact emerging economies like Brazil, Russia, India, and China together with Latin America, Asia Pacific, and Africa regions paved the way for the company’s long-term growth. Harris has a sustainable and diversified product pipeline with a potential market opportunity of $15 billion.
Harris operates in a competitive communications equipment industry and faces competition from The Boeing Co. (BA), General Dynamics Corp. (GD) and Raytheon Co. (RTN). Despite this fact, the company continues to perform well since its international market opportunities are compensating very well for any deficiency in the domestic U.S. market. Early indications in 2011 are clearly showing that Harris is getting a significant foothold in the international markets.
We believe the newly-acquired CapRock Communications will give Harris a strong foothold in the lucrative energy market. CapRock is a global provider of managed satellite communications solutions for energy, government and maritime industries. Harris expects that CapRock will contribute significantly from its fiscal year 2012.
Furthermore, Harris has decided to acquire the Global Connectivity Services (GCS) businesses from Schlumberger Ltd (SLB). Effective purchase price will be around $397.5 million. This proposed take-over will significantly enhance Harris’ capability into mission-critical, end-to-end managed satellite communications market.
GCS operates in more than 50 countries and services several industries like oil and natural gas, government and maritime industries. This deal is expected to close by the end of next month and will be a significant revenue and net profit contributor for Harris in fiscal 2012 and beyond.
We maintain our long-term Neutral recommendation on Harris. Currently, it holds a short-term Zacks #3 Rank (Hold) on the stock.