L-3 Communications: Extremely Undervalued?

Background:

L-3 Communications (NYSE: LLL), the sixth largest defense company in the United States is in the sweet spot for today’s defensive budget. Under President Obama’s proposal for 2010, the defense budget actually contains modest increases for several items in the aerospace/defense industry. Although Defense Secretary Gates has expressed the desire to cut back the Army’s big future combat systems program, we believe his proposals are positive for L-3 in the aggregate. We believe the government intends to increase spending on intelligence, surveillance, and reconnaissance. In addition, homeland security remains high on the list of government attention. These are all important businesses for L-3.