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Subject: Ralph Seger's Pick: LLL

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Joe Craig
Ellicott City, MD
StockCentral Administrator

01/01/2007 11:22 AM
Ralph Seger picked LLL as one of his 5 stocks in our "25 Top Stock Picks for 2007 and Beyond" competition. Here are SSG and ITK files with Ralph's analysis.
Attachment: LLL.ITK Attachment: LLL.SSG
Joe

Bob Weber

01/02/2007 10:49 PM
I can't open the LLL.ITK file attachment nor could a web site determine what program created the ITK file. Please advise on what's required to open the file? thanks Bob Weber

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/03/2007 1:11 PM
Bob, An ITK file is for use with Investors Toolkit. The same data is in the ITK.SSG file. SSG files can be used with many stock analysis programs, including those produced by ICLUBcentral. They can also be used at Stockfundas. If you have Toolkit, download the file to your computer, then start Toolkit and import the file. If you have an analysis program that isn't Toolkit, I'd recommend that you use the SSG file. The SSG file can also be use with several spreadsheets, including the one at Jim Thomas' bivio site. I don't have the URL handy, but if you google "Jim Thomas bivio" you'll find it. I wouldn't be surprised if Jim were to post the actual URL either.

Joe

armin fields

01/03/2007 1:32 PM
Ralph: Thanks so much for participating and for sharing your SSG. Could you explain the thinking behind your Low Price choice of $57.20. It was not one of the four options that your SSG sets forth: $66.80 for the Forecast Low, $43.80 for the Average Low, $49.30 for the Recent Severe Low, and $92.40 for the Price the Dividend will Support. Why did you decide to use $57.20, how did you determine that number, and what was your method? Thanks for your guidance. Armin Fields

Armin Fields check out my SSG blog at http://arminfields.wordpress.com

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/03/2007 3:20 PM
Ralph's response: As to how I selected 57.2 as the expected low price for L-3 communications; I shall be honest and tell you that since I did the SSG on 12/12/06 I really can't remember. If my memory comes back to me I will post another answer. Ralph Seger

Joe

Dan Hess

01/03/2007 5:11 PM
I would guess that perhaps Ralph used the expected low EPS of 4.24 times the expected low PE Ratio of 13.5 or 57.24 that would round to 57.2. The 4.24 being the EPS for the year ended 2005 while the 4.95 is for the latest 4 quarters. Dan Hess

Miriam Beers

01/03/2007 11:46 PM
What kind of screening do you use to find the stocks, a special program? Do you use Take Stock in some way? Thank you. Miriam.

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/04/2007 12:41 PM
Miriam, Here is Ralph's answer: I used a long laborious technique. I have a library of some 100 or so in my Toolkit. I put them all in a portfolio. I then printed a PERT report after first making certain the data was current. First I discarded companies in mature and cyclical industries. I looked at valuation and growth. For those that looked interesting, I looked at the PERT graph and SSG chart. I narrowed it down to those companies that were maintaining their growth during what some people refer to as a challenging economic climate. I should mention that one of my first tasks was to insert the .analyst's estimate of EPS 12 months in the future. I used these EPS to calculate current P/E ratio and PEG. I discarded those stocks which had PEG ratios that were much above 100%. Finally, I refined the SSGs to incorporate my judgment as to reasonable metrics.

Joe

Lynn Brown

01/06/2007 12:50 PM
My club has had LLL on our watch list for quite some time, although in buy range, we haven't had much money. Anyway, did you notice that LLL just lost a very big linguistics contract with the federal government? This is what Yahoo had on their site. New York City-based L-3 assumed the current linguist contract as part of its acquisition of Titan Corp. completed on July 29, 2005. The contract involves supporting U.S. military operations in Iraq and Afghanistan as well as related work at the U.S. detention facility in Guantanamo Bay, Cuba. As a result of the loss of the linguist work, L-3 on Dec. 18 cut its earnings forecast for the year ending Dec. 31, 2007, almost 3 percent. My question is related to the acquisition. Small companies seem to grow with acquisitions, but is that a good thing? Lynn

Barbara Lounsbury

01/10/2007 10:49 PM
Are you concerned that LLL lost a major contract with the government (Titan - for translating in Iraq) as well as losing its CEO last year? We bought L-3 about a year ago and it has shown modest stock price growth (about 8%) but we're worried. Barbara Lounsbury

Joan Anderson

01/11/2007 12:31 PM
Our club has invested in LLL since 8/10/04 we have seen a two thousand profit. The new Value Line states it is favorable for the coming years. My question is how do you feel re the new CEO statement that the company"s frenetic acquisition pace of the last few years is over. This would be open to a takeover approach. He did state he is not actively marketing for this. If the above did take place would the holders be in a good position to make a larger profit?

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/11/2007 12:37 PM
From Ralph: As I said before companies that depend on government contracts such as LLL must be prepared to endure disappointment from time to time. For the long-term I expect LLL to gain it share of government contracts. Ralph

Joe

Joe Magnan
Germany

01/26/2007 5:15 PM
I am confused and concerned about the data quality within the SSG files. The LLL.SSG provided above has an EPS of $1.24 for 30 Jun 06. The STOCKcentral site provides an SSG file that contains an EPS of $1.44 for 30 Jun 06. However, the earnings reported elsewhere were around $0.40 for 30 Jun 06. How can it be possible that there there is so much variance in the information contained in the SSG files?

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/26/2007 7:57 PM

I suspect that what you are seeing here is the effect of normalization -- adjusting the data to correct for one-time or extraordinary events.

Here is what I get for the quarterly EPS and compaing the StockCentral data with SDS from BetterInvesting and also from MoneyCentral.

Quarter	StockCentral	SDS	Moneycentral
6/30/06	$1.24	$1.44	$0.41
9/30/06	$1.31	$1.31	$1.32

Because the three services agree on the September quarter, but have divergent numbers for the June quarter, I'm assuming that there was a big correction made by Hemscott (StockCentral) and Standard & Poors (SDS). I think that the EPS numbers provided by Moneycentral aren't normalized.

As for normalization, here is what our FAQ has to say about the way that Hemscott normalizes EPS numbers:

"our data provider, Hemscott Data, adjusts net income as reported by the company on their Form 10-K or Form 10-Q to calculate fully-diluted, normalized, Earnings Per Share. This figure includes income from continuing operations, less any extraordinary gains/losses or other non-continuing special income or charges. The figure is calculated using diluted common shares outstanding (adjusted for the assumed conversion of all potentially dilutive securities, which may include convertible debentures, warrants, options, convertible preferred stock, etc.)"

You'd have to do a little research to determine what happened in the June 06 quarter. If you can get a copy of the Value Line report, the footnotes there might give you some help. And, with the Value Line report in hand, you'll have a third opinion of the right way to normalize the data. If you go back and read press releases or the 10-Q filings, you might be able to figure it out for yourself, too.

Because both Hemscott and S&P differ so markedly from the Moneycentral number, I'm quite sure that this difference is the result of normalization. It's also why Hemscott and S&P differ by $0.20.

Joe

Dan Hess

01/26/2007 9:43 PM
Joe I think the 1.44 and 1.24 shown in the table you provided are reversed. SDS is actually showing 1.24 while Stock Central is showing $1.44. I did a little checking to try to understand how the data may have been normalized. First I found the as reported EPS for 2Q06 was $0.40. The 0.41 as reported by Moneycentral was based on basic data as opposed to the diluted results of 0.41. Thus I think we can ignore Moneycentral's 0.41. LLL reported two activities that it seems were considered one time non recurring by both S&P, Hemscott, VL as well as LLL. These were an adverse jury verdict of $129M or 0.63 per share EPS and stock based awards of 39.2M or 0.21 per share. Thus starting from the reported $0.40 and adding 0.63 and 0.21 gets you to $1.24. This reconciles with SDS and VL data. I was unable to identify any possible other adjustments made by Hemscott to get to $1.44. It seems to me this may be in error. If Hemscott does perform some adjustment that legitimately gets to $1.44 it sure would be nice to know what they are doing. Since Hemscott uses as reported data for PTP and NI it is hard to decipher what they may be doing. VL shows $1.24 with a foot note indicating non recurring items of $0.84 in 2Q06 that matches with what I have shown above. Dan Hess

Joe Craig
Ellicott City, MD
StockCentral Administrator

01/27/2007 10:15 AM
Transcription = errors! I'll see what we can find out from Hemscott about that quarter.

Joe

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