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Exelis (XLS) has a good quarter

March 1, 2013

Despite 4th quarter revenue and net income being down over last year, apparently Exelis had a good quarter (press release here), or so Mr. Market seems to think today. I guess the expectation was that the company would produce numbers substantially worse than what was reported. Of course with the winding down of the war (or is that humanitarian mission?) in Afghanistan, the projected cuts in defense department spending and now the impact of the SEQUESTER, the company faces an uphill battle in 2013 and 2014. Oh, I almost forgot the huge pension liability the company must continue to fund. All in all, things look pretty negative for XLS. But that’s just what attracted me to the stock in the first place. It’s selling at less than 6 times last year’s earnings (and about 7x 2013 projections) and pays a 3.8% dividend. It’s prospects are not exactly exciting, I know. But if this was a growth company (or, in any case, perceived as such) the PE would be twice or thrice that. It’s a good solid company trading at a decent valuation. Plus, Exelis management has impressed me this past year with all the news releases they put out on new contracts, promotions, etc.; to me it means they understand the investor relations abyss they are in and they’re doing something about it. They just refuse to be ignored! Feisty!

Usually spinoffs outperform in the second year after the spin; let’s see if XLS can perform this year for me!

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From → Positions Closed

One Comment
  1. Their pension plan is 2B$ in the hole, and that underestimates the true liability, since they still assume an 8% rate of return. They have been chipping in 300m$/year which had not really reduced it much either. If you subtract 300M$ from the cash flow or add 2 B$ in pension deficit to the EV, XLS is not cheap any more given it’s prospects.

    I owned this post spinoff and considered it cheap, because they did not disclose the pension issues (deficit was way smaller than). And post spinoff, they “remeasured” the pension obligation which resulted in doubling it all of a sudden. I sold when I realized what the true numbers look like.

    i think this is basically a pension fund with a business attached to it. ITT did the spinoff to rid itself from liabilities, the pensions went to XLS, the asbestos to ITT stub and the chairman stayed with XYL, which just had some debt (which is cheap now, due to low interest rates) , but is otherwise free of nasty liabilities.

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