We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
L3Harris Technologies (LHX) to Divest ESSCO Unit to CPI
Read MoreHide Full Article
L3Harris Technologies Inc. (LHX - Free Report) recently inked an agreement with Communications & Power Industries (CPI) to divest its L3 ESSCO business. Notably, ESSCO manufactures ground radomes for varied applications like air defense, weather radarandair traffic control.
However, the financial terms of the deal have been kept under wraps. The transaction is projected to be complete before 2021-end, subject to customary closing conditions and regulatory approvals.
Rationale Behind the Divestiture
Lately, bigwigs of the defense industry have been engaging in strategic divestituresof their business unitsas theseenable the companies to increase focus on core businesses, eliminate redundancies, and improveoperational efficiency and cost structure. Such divestments also allow the defense primes to focus on more profitable assets with higher returns and pave the way for better market opportunities.
Further, theongoing COVID-19 pandemichas taken a toll on the industry. Consequently, these movesallow the companies to streamline their portfolio of businesses, reduce debt and restructure supply-chain activities, which have taken a major hit since the pandemic began.
Benefits of ESSCO Divestment
Lately, L3Harris has been following a disciplined divestment strategy, as evident from the sale of its Military Training business to CAE Inc.(CAE - Free Report) ,and its Combat Propulsion Systems and related businesses to Germany-based RENK AG, for a total amount worth $1.45 billion, in July 2021. Then in August, the company agreed to sell its Electron Devices business to U.S. private equity firm, Arlington Capital Partners, for $185 million as part of its portfolio restructuring.
Thelatest divestment is in sync withL3Harris’ strategy of focusing on growing its core businesses and technologies,and reshaping its existing portfolio. We expect the companyto use the sale proceeds from ESSCO divestitures for share repurchase to boost its previouslyannounced capital return strategy.
Asof Jun 30, 2021, the company had total gross proceeds from completed and announced divestitures worth approximately $2.7 billion.Meanwhile, L3Harris’ share repurchase outlook for 2021 is pegged at $3.4 billion. Without a doubt, divestiture-gains from the ESSCO sell outwilltakeL3Harris a stepcloser toachieving its share repurchase target.
Other Defense Majors Adopting Divestment Strategies
Considering the current volatile market situation on a global scale, there are quite a few defense players that have taken up divestment activities in recent times to boost their balance sheet.
In May 2020, Raytheon Technologies Corporation’s(RTX - Free Report) completed the sale of its airborne tactical radios business for $275 million to BAE Systems.
In February 2021, Northrop Grumman (NOC - Free Report) closed the sale of its IT services business to Peraton, an affiliate of Veritas, for $3.4 billion in cash. The divestment is in line with the company’s strategy of focusing on growing its core businesses, driving shareholder value and executing its capital allocation strategy.
Price Movement
In the year-to-date period, L3 Harris’ shares have gained 29% compared with the industry’s growthof 12.5%.
Image: Shutterstock
L3Harris Technologies (LHX) to Divest ESSCO Unit to CPI
L3Harris Technologies Inc. (LHX - Free Report) recently inked an agreement with Communications & Power Industries (CPI) to divest its L3 ESSCO business. Notably, ESSCO manufactures ground radomes for varied applications like air defense, weather radarandair traffic control.
However, the financial terms of the deal have been kept under wraps. The transaction is projected to be complete before 2021-end, subject to customary closing conditions and regulatory approvals.
Rationale Behind the Divestiture
Lately, bigwigs of the defense industry have been engaging in strategic divestituresof their business unitsas theseenable the companies to increase focus on core businesses, eliminate redundancies, and improveoperational efficiency and cost structure. Such divestments also allow the defense primes to focus on more profitable assets with higher returns and pave the way for better market opportunities.
Further, theongoing COVID-19 pandemichas taken a toll on the industry. Consequently, these movesallow the companies to streamline their portfolio of businesses, reduce debt and restructure supply-chain activities, which have taken a major hit since the pandemic began.
Benefits of ESSCO Divestment
Lately, L3Harris has been following a disciplined divestment strategy, as evident from the sale of its Military Training business to CAE Inc.(CAE - Free Report) ,and its Combat Propulsion Systems and related businesses to Germany-based RENK AG, for a total amount worth $1.45 billion, in July 2021. Then in August, the company agreed to sell its Electron Devices business to U.S. private equity firm, Arlington Capital Partners, for $185 million as part of its portfolio restructuring.
Thelatest divestment is in sync withL3Harris’ strategy of focusing on growing its core businesses and technologies,and reshaping its existing portfolio. We expect the companyto use the sale proceeds from ESSCO divestitures for share repurchase to boost its previouslyannounced capital return strategy.
Asof Jun 30, 2021, the company had total gross proceeds from completed and announced divestitures worth approximately $2.7 billion.Meanwhile, L3Harris’ share repurchase outlook for 2021 is pegged at $3.4 billion. Without a doubt, divestiture-gains from the ESSCO sell outwilltakeL3Harris a stepcloser toachieving its share repurchase target.
Other Defense Majors Adopting Divestment Strategies
Considering the current volatile market situation on a global scale, there are quite a few defense players that have taken up divestment activities in recent times to boost their balance sheet.
In May 2020, Raytheon Technologies Corporation’s(RTX - Free Report) completed the sale of its airborne tactical radios business for $275 million to BAE Systems.
In February 2021, Northrop Grumman (NOC - Free Report) closed the sale of its IT services business to Peraton, an affiliate of Veritas, for $3.4 billion in cash. The divestment is in line with the company’s strategy of focusing on growing its core businesses, driving shareholder value and executing its capital allocation strategy.
Price Movement
In the year-to-date period, L3 Harris’ shares have gained 29% compared with the industry’s growthof 12.5%.
Image Source: Zacks Investment Research
Zacks Rank
L3 Harris currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.