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Sunday, 2 December 2007
Harris Corp. (HRS) "Weekend Trading Portfolio Analysis

 

 

 

 

 

Hello Friends!  Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice!  As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website. 

As one of the roles of this blog, I have been sharing with you my thoughts on a multitude of 'investable' stocks.  In addition, I am also trying to provide transparency on my actual investment activities.  Recently, I have been participating in Covestor, where you can visit my Covestor page and review my actual holdings, purchases, sales, and performance overall relative to the S&P and other investors. I would encourage you to visit there. 

But I plan on continuing to examine my holdings one by one on intervals.  Currently I own 14 positions in my trading account.  Trying to review a holding every 3 or 4 weeks, I shall be reviewing each holding about once/year.  When I make a trade in any holding I shall certainly review that trade and the rationale behind it.  When indicated, I shall also revisit each stock I hold, but my purpose of this blog is not to pump stocks but rather to share with you the reader my honest assessments of stocks from the perspective of an amateur investor.  I share with you my accomplishments and my mistakes.  From these discussions, I have tried to continue to enhance my own ability to build and manage a portfolio of stocks.  I hope that this effort is helpful for you as well.

Last month I reviewed U.S. Global Invesors (GROW) a stock that I had at that time in my portfolio.  I no longer own GROW, having sold those shares on November 7, 2007 with a small loss.  Going alphabetically (by symbol) through my holdings brings me to Harris Corp. (HRS).  Let's take another look at HRS and see if it still deserves a spot in my blog and in my portfolio!

HARRIS CORP. (HRS) IS RATED A BUY 

What is my current holding and my trading history? 

Currently I own 103 shares of Harris Corporation (HRS) that have a cost basis of $50.05 having been purchased 1/31/07.  HRS closed at $62.77 on November 30, 2007, for an unrealized gain of $12.72 or 25.4% since purchase on these shares.  I have sold one portion of my original 120 shares, having sold 17 shares of HRS on 11/7/07 at $65.16.  This was at a gain of $15.11 or a gain of 30.02% since purchase.   (Reviewing my sale strategy, it is my plan to sell 1/7th of my holdings should any of my stocks hit targets of 30, 60, 90, 120, 180, 240, 300, 360, 450%....etc.)

When would I sell next?

Having sold a portion of my holding at the 30% appreciation level, on the upside my next targeted appreciation level would be at a 60% appreciation point.  This would work out to 1.6 x $50.05 = $80.08.  On the downside, after a single sale at a 30% level, I move up my 'mental' stop to break-even (instead of an (8)% loss.  Thus, if the stock should decline back to my purchase point--$50.05, then that decline would trigger a sale of the entire position.

What exactly does this company do?

According to the Yahoo "Profile" on Harris, the company

"...together with its subsidiaries, operates as a communications and information technology company that serves government and commercial markets worldwide."

How did the do in the latest quarter?

On November 1, 2008, Harris reported 1st quarter 2008 results. For the quarter ended September 28, 2007, revenue increased 30% to $1.2 billion from $947 million in the same quarter last year.  Net income was $100 million or $.73/diluted share, up from $83.9 million or $.60/diluted share in the same period a year ago.

With this report the company also beat expectations.  According to Thomson Financial analysts, Harris was expected to come in at $.74/share (excluding items the company came in at $.76) on revenue of $1.18 billion. The company also raised guidance for fiscal 2008 to a profit range of $3.35 to $3.45/share from prior guidance of $3.30 to $3.40/share.  The company also announced that 2008 revenue should come in 21% ahead of the 2007 level. 

From my perspective, a company that can report great results, beat expectations and raise guidance all at once, is about as strong an earnings report as an investor couple possibly hope for.

How about longer-term results?

Reviewing the Morningstar.com "5-Yr Restated" financials page, we can see the steady revenue growth fronm $2 billion in 2003 to $4.5 billion in the trailing twelve monts (TTM), the steady growth in earnings from $.45/share in 2003 to $3.43/share in 2007 and $3.56/share in the TTM, the increasing dividend from $.20/share in 2003 to $.50/share in the TTM, the expanding free cash flow from $204 million in 2004 to $359 million in the TTM, and the reasonable balance sheet with approximately $1.87 billion in current assets compared to $1.41 billion in current liabilities.

On the 'downside' there is the matter of the increased float from 14 million shares in 2003 to 23 million in 2007 and 140 million in the TTM.  This, as I understand it, is due to issuance of shares for acquisitions.  In any case, this increase in shares hasn't stopped the company from steadily increasing per share amounts.

What about some valuation numbers?

Checking Yahoo "Key Statistics" on Harris (HRS), we find that the market cap for this stock is $8.60 billion, making this stock a large cap stock.  The trailing p/e is a reasonable 17.59, with a forward p/e (fye 29-Jun-09) of 16.01.  With the strong growth expected (5 yr estimated) the PEG works out to a satisfactory 1.23.

Using the Fidelity.com eresearch page, HRS is shown to be reasonably valued with a Price/Sales (TTM) of 1.84, compared to the industry average of 5.14.  In terms of profitability, as measurd by the Return on Equity (TTM), HRS comes in a bit under the industry average at 25.34% with the average being 26.87%.

Finishing up with Yahoo, we discover that there are 137.05 million shares outstanding with 135.89 million that float.  Currently, as of 11/9/07, there were only 955,740 shares out short representing only 0.9 trading days of volume (the short interest).  This doesn't appear significant to me.

The company currently pays a dividend of $.60/share yielding 1%.  The last stock split was a 2:1 split paid out on March 31, 2005.

What does the chart look like? 

Looking at the "point & figure" chart on Harris from StockCharts.com, we can see the steady appreciation in this stock from May, 2004, when the stock was trading as low as $21 to its peak in November, 2007, when the stock hit $66/share.  The stock chart looks strong overall and hasn't broken down its strong and steady price appreciation. 

 


Summary: What do I think?

Let's review some of the findings I discussed above.  First of all the stock has been moving steadily higher trading a bit under its all-time high of $66.  The stock reported quarterly results that were strong, beating expectations, and went ahead and raised guidance.  The Morningstar.com report is also solid. My only concern is the apparent rapid growth in shares recently.  But that does not appear to be significant as earnings and revenue growth have maintained a solid record.  Valuation-wise, the p/e isn't bad, the PEG is under 1.5, and the Price/Sales is competitive.  The Return on Equity is a tad under the average.  And the chart looks solid.

The stock looks great.  I have a small amount of concern with all of these defense contractors as we head into an election that might result in some changes for their prospects.  But even this is only a small concern for me.  I like this stock a lot.  In fact I own the stock!

Thanks again for visiting!  Be sure and visit my Covestor Page where you can find out more about my Trading Account and other investors who have chosen to participate on this website.  (If you are interested in participating on Covestor, drop me a line at bobsadviceforstocks@lycos.com or just leave a message on the blog, and I shall send you a password for an account.  I have four of those passes left and would like to share them with all of you readers!).

If you find the time, be sure and visit my Podcast Website where I discuss many of the same stocks I write about here on the blog.  In addition, consider taking the time to visit my SocialPicks page where all of my picks from 2007 (even those I do not own) are evaluated and reviewed.

If you have any comments or questions, please feel free to leave them on the blog or email me at bobsadviceforstocks@lycos.com.  Wishing you all a healthy and profitable week in the market.

Bob 


Posted by bobsadviceforstocks at 12:14 AM CST | Post Comment | Permalink
Updated: Sunday, 2 December 2007 10:03 PM CST

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