Hone In on Harris

 | Jun 20, 2012 | 9:00 AM EDT  | Comments
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Stock quotes in this article:

hrs

,

irdm

Most smartphones offer a mapping service based on global positioning satellites, or GPS -- and a few airlines with in-flight satellite entertainment have a channel displaying the flight status and progress toward the destination. So, naturally, I took it for granted then that air traffic management (ATM) was probably GPS-based as well.  

But I was wrong. Much of ATM is still ground-based, and primarily reliant on radar to provide aircraft surveillance. Hmm, very interesting. Now, why should investors care about this? I'm glad you asked.

Ground-based systems have blind spots because it is tough to put a radar tower in the middle of the ocean and in other remote areas of the globe. Air-navigation service providers -- the Federal Aviation Administration and Nav Canada -- are changing all of this with a modernization program. In part, this requires all airplanes to be equipped with on-board transmitters on the automatic dependent surveillance-broadcast systems (ADS-B) to broadcast GPS position and other useful data.

This is where Harris (HRS) steps in. The company has signed a five-year contract to provide Iridium Communications (IRDM) with ADS-B receivers for Iridium's NEXT satellite constellation, according to a joint announcement by the two companies. This will be a big step toward transforming air-traffic management to a global satellite-based aircraft-tracking system.

Harris is an international communications-equipment company known primarily for providing communications and information technology to the defense, intelligence and civilian agencies of the U.S. and 150 other governments around the globe.

We follow Harris because it meets Investment Quality Trends' criteria for Select Blue Chips and have earned our "G" designation, meaning the company has achieved a minimum of 10% average annual dividend growth for the previous 12 years. For Harris, the historically repetitive area for Undervalue dividend yield would be 3% -- which, based on the current cash dividend of $1.32, works out to a share value of $44. Recently the stock was trading around $42, so it offers excellent value.

Harris (HRS) -- Weekly
Source: Investment Quality Trends

The historically repetitive area of Overvalue dividend yield would be 0.7% for Harris. Again, based on the current cash dividend, that yield would be realized at around $188 per share. So, based on historically repetitive dividend-yield patterns, the risk-reward profile here is attractive for value investors with a time frame sufficient to let the value of Harris to be fully realized.

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