L-3 Communications Holdings, Inc. (NYSE:LLL) regularly delivers big profits. However, like FLIR Systems, its revenue declined in 2012. L-3 Communications revenue over the past three years (in millions):
1). 2010: $15,680
2). 2011: $15,169
3). 2012: $13,146
L-3 Communications Holdings, Inc. (NYSE:LLL) is also feeling the heat of the sequester, and it lowered its FY2013 revenue guidance to $12.5 billion-$12.55 billion from $12.6 billion-$12.75 billion. Additionally, it lowered its FY2013 EPS guidance to $8.05-$8.15 from $8.15-$8.35. While it’s possible L-3 Communications Holdings, Inc. (NYSE:LLL) is sandbagging, based on industry circumstances, it’s not likely.
Comparatively, FLIR Systems has reaffirmed its FY2013 EPS guidance of $1.56-$1.66. And it expects total revenue to be approximately 10% higher than in 2012. As if that’s not enough good news, FLIR Systems sports a debt-to-equity ratio of just 0.25, showing stronger debt management than L-3 Communications Holdings, Inc. (NYSE:LLL) and Lockheed Martin Corporation (NYSE:LMT), with debt-to-equity ratios of 0.64 and 8.85, respectively.
As you read about Lockheed Martin Corporation (NYSE:LMT), you might assume it’s the best investment of the group, simply because it’s the largest defense contractor in the world. It also has a strong history of generating cash flow that leads to excess capital returns to investors in the form of buybacks and dividends. Furthermore, Lockheed Martin Corporation (NYSE:LMT) is the only company of the three covered here that managed to increase revenue in 2012. Check out its revenue over the past three years (in millions):
1). 2010: $45,803
2). 2011: $46,499
3). 2012: $47,182
That’s impressive consistency. That said, investors care about stock performance more than anything else. Therefore, consider the chart below:
As you can see, FLIR Systems has outperformed its larger peers, but size plays a role here. FLIR Systems isn’t just the top performer; it’s also the most volatile. This tends to happen with smaller companies, since they can more quickly reflect changing market trends.
If you’re looking for something steady, Lockheed Martin Corporation (NYSE:LMT) will likely be a better option for you than FLIR Systems. That said, Lockheed Martin has the most to lose with sequester effects. It’s capable of getting what it wants, but thanks to government cutbacks, it will now face a more challenging environment than it has in the past.
Conclusion
All three aforementioned companies are likely to offer solid long-term returns, but the next decade isn’t likely to be easy in regards to stock appreciation. Considering FLIR Systems has reaffirmed its full-year guidance, and since it doesn’t expect any significant capital requirements throughout the remainder of the year, it has strong potential to be the best investment of the three at this point in time.
The article 1 Defense Stock Worth a Closer Look originally appeared on Fool.com and is written by Dan Moskowitz.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool owns shares of L-3 Communications Holdings and Lockheed Martin.
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