Based on the aggregated intelligence of 170,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, military contractor L-3 Communications Holdings (NYSE: LLL ) has earned a respected four-star ranking.
With that in mind, let's take a closer look at L-3's business and see what CAPS investors are saying about the stock right now.
||New York (1997)
||Aerospace and defense
||CEO Michael Strianese (since 2006)
CFO Ralph D'Ambrosio (since 2007)
|Return on Equity (average, past 3 years)
||$650 million / $4.14 billion
||Honeywell International (NYSE: HON )
Lockheed Martin (NYSE: LMT )
Raytheon (NYSE: RTN )
Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 97% of the 818 members who have rated L-3 believe the stock will outperform the S&P 500 going forward. These bulls include TMF42 and shaileshnita.
Just three weeks ago, TMF42 tapped L-3 as a great way to play defense:
L-3 has a diversified project portfolio that is positioned in the right areas to avoid being crushed by defense spending cutbacks (fears of which are overblown). Tack on a valuation that is cheap in absolute terms, and very cheap on a historical basis and we have an outperformer.
L-3 seems to be cheap on a relative basis, as well. After a year of industry-lagging price performance, the stock is currently available at forward P/E (8.5) discount to rivals Honeywell (14.1), Lockheed (10.3), and Raytheon (9.5), as well as other defense plays like Boeing (NYSE: BA ) (13.8) and General Dynamics (NYSE: GD ) (9.5).
CAPS member shaileshnita elaborates on the bull case:
L-3 Communications has a very good valuation. ... It pays a dividend yield of 2.2% with a payout ratio of 20%. It has a small debt. With this kind of valuation one would expect the stock price to appreciate but that isn't the case for the past two years. Since this American company belongs to defense industry, I believe the depressed stock price reflect the investor's fear of lower demands for defense items. I don't see a real justification for that fear.
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