L-3 Communications Holdings, Inc. (NYSE:LLL)

I work here, so not likely to make the bosses happy going bear on this one. I'm a forced shareholder through 401K match. This has nothing to do with the core business or management acumen. It's not even really a valuation call. The biggest problem lies in the defense support position to which L3 is married.

Whomever is President a large restructuring is on the way and by restructuring I mean a cut in defense contract. L3 has seen this coming and has routinely (over the past few years) underbid long term contracts with the government to avoid them being slashed in a budget contraction. I see them fundamentally not losing revenue but L3 is also very limited on where it can cut. Our employee based is highly specialized and often contracted to the government by filling an exact number of positions. The specialization means higher employee costs and (even with a declining defense industry) high turnover.

Most corporations in the defense industry can slash costs by slashing jobs, i.e. 3 employees can build a helicopter blade previously built by 4. L3 is contracted dramatically differently if your providing 5 hyper-spectral imagery analysts to five different army commands maintained all over the globe, you cannot cut that to 4. Thats both a good and bad thing, the work load will be steady but you are likely to see significant margin contraction as L3 gains market share by keeping the cost to the government low.

All in all I think its a great LONG term strategy, but I don't think its ideal for near term profitability and as defense stocks get shredded over the coming years I have a feeling most investors throw out LLL along with bathwater.

In short Love the company hate the stock at its current price and operating environment.