L-3 Stock Could Be Winner After Terrorist Attack
Shares of L-3 Communications Holdings, Inc. (NYSE.LLL) have been trading around the $114.00 per share mark, dropping to a yearly low of $102.50 in October. However, LLL stock has made a strong comeback, reaching back into the $127.00 range. Indeed, the designer and manufacturer of command, control, communications, intelligence, and reconnaissance systems had dropped over nine percent in 2015, but it is poised not only to stabilize at its yearly high range but also to exceed it.
LLL stock was under pressure because of the company’s falling revenue. To a greater extent, like other defense contractors, L-3 has had to endure reduced spending from the Pentagon. However, the recent push from military strategists for a new generation of strategic stealth bombers has opened up a new season of defense spending. LLL stockholders will benefit both from the funding side and from specific capabilities in view of strong indications that a security breach has allowed terrorism to target air travel successfully.
A Sudden and Increased Threat of Terrorism Affecting Air Travel
Investigators are increasingly attributing the crash of Metrojet Flight 9268 over the Sinai, which had just taken off from Egypt, to a bomb placed on the aircraft. The crash, which killed 240 people, is currently believed to be an attempt by the terrorist group Islamic State to draw Russia into a protracted conflict. Is proven an act of terrorism, the crash would raise the threat of more sinister actions in the skies, and not just those over the Sinai.
The investigation is continuing, but governments are not taking chances. The U.K. has already ordered a suspension of flights to Sharm El-Sheikh, given its inclination toward the likelihood of terrorism. Russia has followed suit, banning all flights to Egypt. However, in order to control the impact of this latest incident, which could potentially discourage travelers all over the world, airport authorities, starting from those in Egypt, will have to act quickly to restore trust.
EasyJet, one of the most affected carriers given its dominant role in serving Sharm el-Sheikh, has demanded passengers only use hand luggage. (Source: “Russian plane crash: First flights return to UK after Sharm alert,” BBC, Nov. 6, 2015). Nevertheless, this can only be a temporary measure and inevitably a more systematic approach will be necessary. L-3 has the technology to help develop new security systems.
The Metrojet crash investigators suggest terrorists placed a bomb in one of the luggage items, which was smuggled on board the aircraft by a presumed insider. If this is proven, it will drive a worldwide demand for more advanced security detection systems.
L-3 Could Be Winner in Metrojet Crash
L-3 makes the ProVision ATD, one of the most effective detectors, deployed in airports all over the world at checkpoints. The L-3 ProVision can “detect concealed objects made of a broad variety of materials—both metallic, and non-metallic” according to the company’s web site. L-3 also offers multi-view X-ray products for air cargo security to comply with recent and emerging regulatory requirements. These requirements are slated to be upgraded in the wake of Metrojet flight 9268. The system uses a high-powered X-ray to inspect items as diverse as fruit and electronics across a range of freight systems. (Source: Security & Detection Systems, L-3, last accessed November 9, 2015.)
While one of the effects of the crash will be to intensify Russia’s operations against Islamic State in Syria, L-3 Communications also has access to superior drone technology. Increasingly capable drones are seen as a deterrent, because their accuracy and capabilities facilitate the hunt for specific targets.
L-3’s Wescam division makes surveillance cameras as well as aerial, land and sea high-tech sensors, allowing for the development of Unmanned Aerial Vehicles (UAVs), known as drones. L-3’s Wescam unit, based in Canada, is a specialist in advanced detection and surveillance, having sold related products to military, police, and security agencies worldwide; including to the United Arab Emirates, Jordan, Ireland, and the United States.
Meanwhile, travel fears extend far beyond Sharm el-Sheikh. L-3 stock should gain from a worldwide effort to manage risk. The Metrojet crash has renewed security fears in Egypt, but threats exist worldwide. The Maldives have declared a state of emergency for an alleged plot against the not-very-democratic local government, accused by the UN of human rights violations. (Source: “Maldives declares state of emergency ahead of planned protest by the opposition,” The Australian, Nov. 4, 2015).
In Thailand, last August’s bombing attack is still fresh in people’s minds, as is the murder of a young English couple on one of the country’s most beautiful beaches. Then there is the Tunisia refugee crisis. Meanwhile, U.K. authorities have taken the terror alert to the second highest level while claiming they have foiled a half-dozen attacks after the London Underground and bus explosions that killed 60 and injured 500.
Here’s the Bottom Line on LLL Stock
Even as threats continue, tourism is growing. In Europe alone, in 2014, there were 45 million overnight stays in hotels. Globally, tourism continues to grow, fueled primarily by the new Chinese middle class. However, the mass exodus from Egypt seen over the past few days will create a psychological watershed. Before a trip, in addition to the weather and local food specialties, travelers will be considering the geopolitical implications. L-3 stockholders will benefit from the extra security these travelers will expect and demand in order to help quell their fears.