Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Harris Corp.'s
What the numbers tell you
The graphs you're about to see tell Harris' story, and we'll be grading the quality of that story in several ways.
Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always be reported at a steady rate, we'll also look at how much Harris' free cash flow has grown in comparison to its net income.
A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Harris' share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.
Is Harris managing its resources well? A company's return on equity should be improving, and its debt to equity ratio declining, if it's to earn our approval.
Healthy dividends are always welcome, so we'll make sure that Harris' dividend payouts are increasing, but at a level that can be sustained by its free cash flow.
By the numbers
Now, let's take a look at Harris' key statistics:
HRS Total Return Price data by YCharts
|
Passing Criteria |
3-Year* Change |
Grade |
|---|---|---|
| Revenue Growth > 30% | 8.9% | Fail |
| Improving Profit Margin | 39.1% | Pass |
| Free Cash Flow Growth > Net Income Growth | 15.3% vs. (19.3%) | Pass |
| Improving Earnings per Share | 36.8% | Pass |
| Stock Growth (+ 15%) < EPS Growth | 94.3% vs. 36.8% | Fail |
Source: YCharts. * Period begins at end of Q2 2009.
HRS Return on Equity data by YCharts
Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Improving Return on Equity | (19.6%) | Fail |
| Declining Debt to Equity | 53.2% | Fail |
| Dividend Growth > 25% | 68.2% | Pass |
| Free Cash Flow Payout Ratio < 50% | 21.7% | Pass |
Source: YCharts. * Period begins at end of Q2 2009.
How we got here and where we're going
Harris turns in a passable performance, with five of nine possible passing grades. The company's weakness this year undid a period of across-the-board growth, leaving the company to lick its wounds while refocusing.
Harris' lousy year has been blamed on government cutbacks, so the possibility of a fiscal cliff to fall off probably keeps Harris' management up at night. The pain started last year when the Pentagon canceled a Ground Mobile Radio program Harris had worked on with Boeing
Harris has been compensating for declining defense spending by taking full advantage of its telecom expertise. The company's developed a line of secure mobile devices, including a tablet and a recently unveiled smartphone, aimed at the large public safety community.
The devices, which run Google's
The company should be able to charge a nice premium over iPhones and Nexuses for these rugged special purpose devices. With over 1.3 million employed policemen, firefighters, and paramedics in the United States alone, the company also has a fairly large base of potential sales as departments upgrade to modern technology.
Putting the pieces together
Harris has some of the qualities that make up a great stock, but no stock is truly perfect. These numbers are likely to change over time, so it's important to keep track of Harris' progress. The Fool is here to help. When you add Harris to your free personalized Watchlist, you'll get updates whenever we uncover any news you'll need.
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