JP Morgan is out with a substantial call on Harris Corp (NYSE:HRS) downgrading the shares to Underweight from Neutral while lowering tgt to $27 from $37.

The firm believes RF sales growth could seriously disappoint as soon as the June quarter, and their estimates are well below consensus for each of the next three years. Relative to other defense companies they follow, Harris is less diversified and enjoys less visibility yet still trades at a premium.

RF could roll over as soon as Q4. Six-month sales in RF have typically been ~85% of the backlog at the start of that period in recent years. However, in order to reach RF sales growth guidance, 2H sales must be >130% of the December 31 backlog, making an FY09 miss likely in firm's view. They assume that HRS achieves RF sales of 114% of its 12/31/08 backlog in 2H, meaning that orders need to pick up materially and soon for it to achieve even their estimate. FY09 order performance has been poor due to a slowdown at DoD, and as the new Obama defense team is still coming together and Harris has announced only $68 mln of orders since 12/31, the firm does not believe substantial order activity has resumed. Moreover, the company postponed its analyst meeting from March 18-19 to May 11 last week, saying a new date and location would facilitate higher attendance. They believe management may also want additional time to monitor order activity at RF.

Notablecalls: This call reads ugly. HRS has always the poster boy of DoD related spending and JP Morgan's comments will take some of that shine away.

HRS is set to report on Apr 29 but given the comments from JPM, I think one has to consider a warning from the co a real possibility. I'm now defense expert but it sure looks like there is very little HRS can do to meet current estimates.

I suspect this one may have 2 pts+ downside today and 3-5 pts worth of downside in the coming weeks.

PS: They did announce a $600M buyback this morning to counter the JPM call but I think the market will see right through it.