Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of L3 Technologies Jumped in May

By Lou Whiteman - Jun 4, 2019 at 3:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The defense electronics company reports a strong quarter as it preps for a major merger.

What happened

Shares of L3 Technologies (LLL) climbed 10.7% in May, according to data provided by S&P Global Market Intelligence, on the back of strong earnings and growing investor enthusiasm about the company's pending merger that would create a new defense industry powerhouse.

So what

L3 is in the process of being acquired by Harris (LHX -1.85%) in an all-stock deal that would create a $40-billion-market-cap defense electronics company. It started the month by reporting first-quarter earnings of $2.89 per share on revenue of $2.7 billion, easily surpassing consensus estimates for $2.49 per share in earnings on sales of $2.52 billion.

A display of radomes used to protect ship communications systems.

L3 Technologies-made radomes for ships. Image source: L3 Technologies.

The company also raised its outlook for the year, projecting full-year 2019 revenue of $10.9 billion from $10.75 billion previously and above the consensus $10.78 billion view. The forecast for net cash flow from operations was also raised to $1.285 billion from $1.275 billion.

The quarter led a number of analysts to raise their price targets on L3 shares. Credit Suisse's Robert Spingarn raised his target to $258 from $232, saying L3 "came out swinging" in what was likely its last quarter as an independent. SunTrust's Michael Ciarmoli raised his target to $265 from $228 due to the company's "robust" orders and because of the "powerful combination" with Harris.

Harris also received a couple of price target boosts in May, which could have a favorable impact on L3 shares because the deal is a stock swap. Shares of Harris traded up 11.1% for the month.

Now what

L3 and Harris are both doing well on their own. When they combine later this year, they will have the ability to increase the business they do directly with the Pentagon instead of serving as a subcontractor, likely leading to higher margins over time. Harris's focus on battlefield management, aircraft communications, and classified work should blend well with L3's manufacture of sensors and advanced electronics.

Mergers inherently come with risk, but analysts have good reason to be excited about the potential for this combination. If the companies can work the integration as planned, shares of the new entity should have more room to run.

Lou Whiteman owns shares of Harris. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

L3 Technologies, Inc. Stock Quote
L3 Technologies, Inc.
LLL
L3Harris Technologies, Inc. Stock Quote
L3Harris Technologies, Inc.
LHX
$230.24 (-1.85%) $-4.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
377%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/08/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.