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HRS

Harris

$154.88

0.61 (0.40%)

, LLL

L3 Technologies

$195.99

0.74 (0.38%)

12:18
10/14/18
10/14
12:18
10/14/18
12:18

Harris, L3 Technologies to combine in merger of equals

Harris Corporation (HRS) and L3 Technologies (LLL) have agreed to combine in an all stock merger of equals. Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris common stock for each share of L3 common stock, consistent with the 60-trading day average exchange ratio of the two companies. Upon completion of the merger, Harris shareholders will own approximately 54% and L3 shareholders will own approximately 46% of the combined company on a fully diluted basis. The combined company, L3 Harris Technologies, will be the 6th largest defense company in the U.S. and a top 10 defense company globally, with approximately 48,000 employees and customers in over 100 countries. For calendar year 2018, the combined company is expected to generate net revenue of approximately $16B, EBIT of $2.4B and free cash flow of $1.9B. The combination is expected to generate approximately $500M of annual gross pre-tax cost synergies, or $300M net of savings returned to customers, in year 3. The savings will come from reducing direct and indirect spend, rationalizing footprint, consolidating corporate and segment headquarters, establishing a common shared services platform for IT and finance and reducing other overhead costs. The company is expected to invest approximately $450M cash to achieve the synergies over the next 3 years. The combined company will target $3B in free cash flow by year 3, driven by organic growth, cost synergies, working capital improvements and capital expenditure efficiencies. L3 Harris Technologies will be well capitalized with a strong balance sheet and a leverage ratio of 2.2 times net debt to trailing twelve months EBITDA. The combined company will remain committed to maintaining an investment grade credit rating and a dividend payout consistent with each company's current practice and deploying excess cash toward share repurchases, including up to $2B in share repurchases in the 12 months post-closing. L3 Harris Technologies will be headquartered in Melbourne, Florida. The combined company's Board of Directors will have 12 members, consisting of six directors from each company. William Brown will serve as chairman and CEO, and Christopher Kubasik will serve as vice chairman, president and COO for the first two years following the closing of the transaction. For the third year, Brown will transition to executive chairman and Kubasik to CEO, after which Kubasik will become chairman and CEO. The merger is expected to close in mid-calendar year 2019, subject to satisfaction of customary closing conditions, including receipt of regulatory approvals and approval by the shareholders of each company.

HRS

Harris

$154.88

0.61 (0.40%)

LLL

L3 Technologies

$195.99

0.74 (0.38%)

  • 16

    Oct

HRS Harris
$154.88

0.61 (0.40%)

07/05/18
ARGS
07/05/18
NO CHANGE
Target $170
ARGS
Buy
Harris price target lowered to $170 from $196 at Argus
Argus analyst John Eade lowered his price target on Harris to $170 from $196 after a 8.4% decline in its stock price over the past quarter as a result of the "ongoing trade and tariff concerns" stemming from "presidential tweets". Eade keeps his Buy rating however and believes that the pullback offers a buying opportunity, saying the company stands to benefit from a "substantial increase in military spending following the March 2018 federal budget agreement" with solid earnings growth expected in 2018 and beyond. The analyst also notes that the slight valuation premium for Harris on price to sales multiple is deserved given his forecast for the company's earnings growth.
08/01/18
FBCO
08/01/18
NO CHANGE
Target $190
FBCO
Outperform
Harris price target raised to $190 from $175 at Credit Suisse
Credit Suisse analyst Robert Spingarn raised his price target for Harris to $190 from $175 after the company reported a largely in-line quarter and FY19 guide, while raising its medium-term guidance, calling for high-single digit growth across its Communication Systems and Electronic Systems segments, and indicating further potential upside to margins of 30.0% and 18.6%, respectively. The analyst reiterates an Outperform rating on the shares.
08/15/18
UBSW
08/15/18
INITIATION
Target $175
UBSW
Neutral
Harris initiated with a Neutral at UBS
UBS analyst Myles Walton initiated coverage of the Aerospace & Defense sector, starting Harris with a Neutral rating and $175 price target.
08/16/18
ARGS
08/16/18
NO CHANGE
Target $190
ARGS
Buy
Harris price target raised to $190 from $170 at Argus
Argus analyst John Eade raised his price target on Harris to $190 and kept his Buy rating after the company's recent earnings beat and FY19 guidance implying high-teen EPS growth in FY19. The analyst notes that Harris should "benefit from a substantial increase in military spending following the March 2018 federal budget agreement", along with a solid earnings growth coming in FY19 and subsequent years. In the near term, Eade expects the demand for the company's tactical communication services to become its strongest growth area. The analyst adds that Harris trades at a slightly premium to the market on price-to-sales multiple basis, but believes that the premium is warranted based on his forecast of 16% EPS growth for the company over the next 5 years.
LLL L3 Technologies
$195.99

0.74 (0.38%)

08/15/18
UBSW
08/15/18
INITIATION
Target $230
UBSW
Neutral
L3 Technologies initiated with a Neutral at UBS
UBS analyst Myles Walton initiated coverage of the Aerospace & Defense sector, starting L3 Technologies with a Neutral rating and $230 price target.
08/21/18
RHCO
08/21/18
NO CHANGE
Target $41
RHCO
Buy
SunTrust raises price target on Aerojet Rocketdyne and Heico
SunTrust analyst Michael Ciarmoli raised his price target on Aerojet Rocketdyne (AJRD) to $41 from $36 and Heico (HEI) to $85 from $76 as part of his broader research note on the Aerospace & Defense sector. The analyst notes that select names will benefit from his expected "swift passage" of the FY19 defense spending bill that will yield accelerated bookings and growth in the second half of FY18. Ciarmoli also highlights buy-rated Curtis Wright (CW) and L3 Technologies (LLL) as his favorite long ideas.
09/21/18
MSCO
09/21/18
NO CHANGE
MSCO
Morgan Stanley says not to panic over Defense payment proposal
Morgan Stanley analyst Rajeev Lalwani attributes the underperformance in Defense stocks over the last two days compared to the broader market to heightened concerns around a month old proposal from the Department of Defense to adjust progress and performance payments down to 50% from 80% of cost, which would effectively slow the timing of cash flow receipts closer to when a project is complete. He sees a number of reasons not to panic, firstly because he believes that the Administration will not move forward with a proposal industry-players will paint as being anti-business and anti-defense spending. Even if it were to move forward, the proposal primarily impacts cash flow timing, with underlying earnings unchanged and potential offsets evident, Lalwani tells investors. Lastly, while there would be considerable uncertainty around rule implementation, the proposal would create a path to superior cash flows versus today, the analyst added. Companies in the defense contracting space include General Dynamics (GD), Huntington Ingalls (HII), L3 Technologies (LLL), Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTN).
09/21/18
09/21/18
NO CHANGE

Fly Intel: Today's top analyst calls on Wall Street
Check out today's top analyst calls from around Wall Street, compiled by The Fly. UBS SAYS BUY AT&T: UBS analyst John Hodulik upgraded AT&T (T) to Buy and raised his price target for the shares to $38 from $33, noting that the stock is trading near all-time low valuations and at its widest valuation gap to Verizon (VZ). The Time Warner transaction and accounting changes "have compounded [other] issues, leading to a loss of visibility for investors," but his work indicates that AT&T will return to EBITDA growth in the second half of 2018, after a 6% decline in the first half, due to growth in Wireless and WarnerMedia as well as slower declines in Entertainment. JPMORGAN GOES TO BULL FROM BEAR ON NOVAVAX: JPMorgan analyst Eric Joseph double upgraded Novavax (NVAX) to Overweight from Underweight saying the risk/reward is favorable into the report of Prepare trial data in Q1 of 2019. The trial is assessing the efficacy of the company's RSV F Vaccine for infants via maternal immunization and the analyst believes the shares can hit a range of $2.00 to $2.25, he told investors. JPMORGAN SUGGESTS BEING SHORT COPART, LONG KAR: JPMorgan analyst Ryan Brinkman downgraded Copart (CPRT) to Underweight and lowered his price target for the shares to $47 from $48. The company reported softer than expected Q4 results this week but trades at "near record multiples" of earnings and EBITDA, Brinkman told investors. The analyst sees a potential pair trade in going long KAR Auction (KAR) shares, and short Copart shares, to capitalize on the "valuation disconnect." LOOP SETS $8.25 TARGET ON HARMONIC: Loop Capital analyst James Kisner initiated Harmonic (HLIT) with a Buy rating and $8.25 price target, saying he believes Harmonic can "drive robust revenue growth on its Cable Edge business as cable operators like Comcast (CMCSA, CMCSK) adopt its virtual CCAP/CMTS solution," and that the company's video business with stabilize. 'DON'T PANIC' OVER DOD PROPOSAL: Morgan Stanley analyst Rajeev Lalwani attributes the underperformance in Defense stocks over the last two days compared to the broader market to heightened concerns around a month old proposal from the Department of Defense to adjust progress and performance payments down to 50% from 80% of cost, which would effectively slow the timing of cash flow receipts closer to when a project is complete. He sees a number of reasons not to panic, mainly because he believes that the Administration will not move forward with a proposal industry-players will paint as being anti-business and anti-defense spending. Publicly-traded defense contractors include General Dynamics (GD), Huntington Ingalls (HII), L3 Technologies (LLL), Lockheed Martin (LMT), Northrop Grumman (NOC) and Raytheon (RTN).

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