As a general rule, now is not a great time for selling stuff to the government. Governments, from the national ones that run countries to the local types that run cities and states, are focused on slashing budgets, not spending.
But Harris Corporation (HRS) has found a profitable exception to this rule: governments are always good customers when you make something so important that lives are lost without it. Harris, which gets about 80% of its revenue selling critical communications systems to governments, has seen its revenue grow some 63% in the past five years.
Looming peace might not be all bad for defense stocks, in fact.
Harris Stock Chart by YCharts
Fortunately for us, its share price has not experienced such glory.
Harris Stock Chart by YCharts
YCharts says these shares are undervalued. Between the strong current fundamentals that make it a favorite of the charts and strong forecasts for future sales, Harris stands to outperform.
Harris' strength lies in a product portfolio full of stuff that helps officials prevent and deal with crises, such as terrorist attacks, combat in foreign countries and natural disasters. The company employs some 7,000 engineers and scientists to design these products, and it sells them to governments and companies in 150 countries.
For example: to state and local governments, Harris sells the communications systems that allow police, firefighters and other emergency responders to keep in contact, even in searing heat or other harsh conditions. To 7,000 aviation facilities, Harris supplies the systems that air traffic controllers use to track planes. For the National Oceanic and Atmospheric Administration, Harris is building a system that will analyze satellite images 40 times faster than the current technology, allowing forecasters to predict hurricanes and other weather emergencies much faster.
Another big chunk of Harris' earnings come from sales of communications equipment to U.S. armed forces, including secure wireless networks that soldiers use in the field. Harris systems also send live video to commanders from unmanned systems, such as satellites or drones. The systems allow soldiers in battle to stay in constant contact with headquarters.
Despite government budget cuts, Harris has expanded its profit margins in the past few years with its growing sales.
Harris Stock Chart by YCharts
Return on equity also has grown recently, a good sign that management understands how to make shareholders richer in this business.
Harris Stock Chart by YCharts
Management was confident enough about the company's future to buy back some shares last year…
Harris Stock Chart by YCharts
… and to raise its dividend. Any dividend is an unusual bonus in the communications equipment sector, but Harris has paid and raised them pretty steadily. Although the dividend yield is modest now, it has paid higher returns in the past.
Harris Stock Chart by YCharts
Despite this solid performance, which was topped off with particularly strong quarterly results last month, Harris shares still look cheap. Its price to sales ratio is well off its peak in recent years.