There are no safe havens in the stock market. Every stock carries risk. But some less than others. This column features stocks that have shown one or more of the following characteristics: less volatility, better earnings, larger market caps, safe and increasing dividends. In these times of turmoil, our goal is to show readers better opportunities for investing with fewer risks.

December 19, 2011 - L-3 Communications Holdings, Inc., (LLL-NYSE) through its subsidiary, L-3 Communications Corporation, provides command, control, communications, intelligence, surveillance, and reconnaissance (C3ISR) systems; aircraft modernization and maintenance; and government services in the United States and internationally.

Government Services segment provides communication software support, information technology services, and various engineering development services and integration support; engineering and information systems support services; teaching and training; human intelligence support services; command and control systems and software services; and technical and management services.

Aircraft Modernization and Maintenance offers modernization and refurbishments, upgrades and sustainment, maintenance, and logistics support services, as well as turnkey aviation life cycle management services for military and various government and commercial customers.

Electronic Systems provides components, products, subsystems, systems, and related services across various business areas, including power and control systems, electro-optic/infrared, microwave, simulation and training, precision engagement, warrior systems, security and detection, propulsion systems, avionics and displays, telemetry and advanced technology, undersea warfare, and marine services. L-3 Communications Holdings, Inc. was founded in 1997 and is based in New York, New York.

L-3 is one of those rare companies that increased earnings every year during the recession. In 2008, it made $6.98 a share, then $7.39, and last year, finished with $8.25. This year, according to 18 analysts' consensus, should show $8.72, then might, emphasis on might, have a dip to $8.49 in 2012. But that's the consensus from a range of analysts' estimates that go from $7.70 to $9.57. If one of the outliers in that estimate is right, this stock will either have a great year next year or a tough one.

Third quarter results were an improvement over last year's third period, thanks to increased demand in the ISR (Intellligence, Surveillance and Reconnassance) group. Earnings grew by 8% compared to last year's third. Also contributing to better numbers were a stock buyback program that took 3.7 million shares off the market and a lower tax rate. Revenues, in contrast, were down slightly to $3.787 billion from $3.835 billion. Most of the weakness was in the Government Services division. Exiting Iraq and Afghanistan cut into government needs for LLL's products and services. A delay until 2012 for a Joint Cargo Aircraft which will add $80 million to the top line will most likely affect revenues in the fourth quarter.

The big cloud looming over the horizon for LLL is the deficit reduction needed in Washington. Some analysts see more than $1 trillion coming from cuts in security budgets over the next 10 years. Making things more difficult will be cuts in defense and military spending, creating more competition for LLL as those companies directly affected by those cuts will look to use their expertise in areas LLL now dominates or participates in. However, investors should take some comfort in the Department of Defense's continuing need for intelligence and counter-terrorism products and services, both supplied by LLL. How quickly the government can implement any cuts is the question since it can't yet decide on how much or where. It would be a fair estimate to say that nothing that will directly affect LLL will happen for at least a year or two.

The company is moving a division out on its own: Englity. This is a unit in Government Services specializing in System Engineering and Technical Assistance. The purpose is to allow more focus on customer value in this group's specializations.

Essential numbers:
- Trailing P/E: 7.4
- Forward P/E: 7.6
- Price to sales: .42
- Price to book: .97
- Operaing margin: 10.78%
- Profit margin: 6.17%
- Total revenues (last 12 months): $15.41 billion
- Total cash: $538 million
- Cash per share: $5.39
- Total debt: $4.14 billion
- Total debt to equity: 61%
- Current ratio: 1.88
- Book value: $66.38
- Shares Outstanding: 99.86
- Held by insiders: .36%
- Held by institutions: 78%
- Dividend $1.80
- Payout ratio: 20%
- Financial Strength: B++

Conservative investors may wonder about those cuts in government spending, but that concern is most likely baked into the current stock price (at least to the tune of $1 trillion over the next 10 years....the current estimates). Looking at some of the valuation metrics (such as price to book and the p/e ratio), this stock seems to be trading at levels that are enticing. Keep in mind whatever cuts are coming, they won't happen for at least a year so the next 12 months could be solid ones for LLL.

- Company Web site: www.L-3Com.com

Ted Allrich