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Subject: Ellis Traub's Pick: LLL

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Joe Craig
Ellicott City, MD
StockCentral Administrator

01/16/2007 11:49 AM
Ellis Traub has picked LLL as one of his 5 stocks in our "25 Top Stock Picks for 2007 and Beyond" competition. "L-3 Communications (LLL) - A strong player in the defense industry, LLL has maintained its growth by acquisition and has defended itself against vulnerability through diversification. The loss of its CEO, Lanza, has propelled the price into a range where this desirable company is available at a reasonable price. (I own it.)" Ellis used Take Stock to analyze LLL. The two attached PDF files contain his analysis.
Attachment: LLL-summary.pdf Attachment: LLL.pdf
Joe

Albert Molter, Jr
San Antonio, Texas

01/17/2007 9:59 PM
I find it interesting that your projected Revenues and EPS exceed Value Line's projections by a good amount: Revenues by 47% and EPS by 28%. This prompts my to rhetorically ask at the outset, "What do you know that the analyst doesn't?" The interesting thing is that I would have begun my evaluation the same as you, with about 20% Revenue growth, and then, realizing that I would have been considerably higher than the analyst, I would have ratcheted my projections downward to be in the ballpark with the analyst's projection (within an 'acceptab le' growth rate). From that point I would have developed the projected Income Statement, or preferred procedure. I would have used the projected number of shares outstanding (130 million) to best accommodate the use of options as a form or executive compensation. One of the things that I feel supports my method in this case is that LLL benefits from government contracts. Although it is true that most contracts are multi-year in length, they are still subject to annual Congressional funding and renewal. To portray future growth to be similar to what it has experienced in the past, in my estimation, does not, in my estimation, take this form on revenue production into consideration. I do hold LLL in my portfolio, and I consider this company to be very strong, with a projected total return in the neighborhbood of 11%. You have an interesting Stock Selection Guide, and you have done me a distinct favor by presenting the Technamental Stock Study Worksheet. Thank you very much for what you have presented. Al Molter Director South Texas Chapter

Al Molter

Dan Hess

01/18/2007 8:10 AM

I find it interesting that your projected Revenues and EPS exceed Value Line's projections by a good amount: Revenues by 47% and EPS by 28%.

"What do you know that the analyst doesn't?

I am not Ellis nor would pretend to be but have you considered that VL usually does not include grwoth via acquisitions in their future estimates? It seems much of the past growth of LLL was via acquisitions and thus Take Stock would be basing its future estimates upon data that did include acquisitions.

Dan Hess

armin fields

01/18/2007 1:22 PM
In Ellis' TSSW, Take Stock estimates 18.00% EPS growth for the next 5 years. It did so initially and at the end of its analysis after a preferred procedure-business model projection resulted in an even higher estimate. However, all of the analysts (First Call, Zacks, Reuters, S&P Compustat, and Value Line) are estimating much less, ranging from a low of 12.00% by Value Line, to 14.3% by Zacks and S&P, to a high of 16.24% by Reuters. The Reuters forecast less one standard deviation (16.24 - 6.01 = 10.23%) shows wide variation and is the conservative estimate that I would use. 18.00% EPS growth seems wildly optimistic and far from conservative. Moreover, Take Stock's Forecast High Price of $220.19 is some $35 per share greater than Value Line's estimated High Price of $125-185, or 19% higher. Armin Fields

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

Ellis Traub
Davie, Florida
www.financialiteracy.us
ICLUBcentral

01/26/2007 10:27 PM
I didn't know anything the analysts didn't know. Didn't even look to see what the analysts thought when I picked the stock. Had I bothered to look, I might have been a little more conservative with my projection. In any case, I own the stock and I'm glad I do. The discrepancy in June earnings is probably due to the different interpretations the various data providers assign to $129 million in litigation costs that were booked that quarter. The decision about what should be normalized out is a rather subjective one and the different providers likely think differently about such costs and whether they should be booked all in the same quarter.

Ellis Traub

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Forums > Stocks with tickers beginning L-Q > LLL > Ellis Traub's Pick: LLL

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