Exelis Inc Com (NYSE:XLS)

CAPS Rating: 5 out of 5

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Member Avatar Silver1956 (< 20) Submitted: 7/17/2013 12:59:47 AM : Outperform Start Price: $13.76 XLS Score: +56.56

I would think this is a 10,000 dollar investment 07/16/2013


Member Avatar somrh (77.18) Submitted: 1/4/2012 12:39:47 PM : Outperform Start Price: $8.24 XLS Score: +135.39

While I initially thought this one was very cheap, I'm now of the opinion that it's at best fairly priced.

Initially the company reported that it would be taken on a pension fund which was underfunded by $1.2B. These numbers are from ITT's 2010 10-K. A look at XLS's 3Q 10-Q shows that the underfunded status is now $2.15B. The reasons for the change were (1) declining asset prices and (2) changes to the actuarial assumptions.

The actuarial assumptions, as far as I can tell, have not yet been disclosed. As of ITT's Dec 2010 10-K, the assumptions were about 6% for the discount rate and 9% for expected rate of return.

XLS claims that their pension fund assumptions are "conservative". Maybe they are now as of the change (again, I haven't seen the numbers), but the previous assumptions are hardly conservative. In an environment with low interest rates and overpriced stocks, I can't imagine their pension fund getting 9% returns. If they do, I'll congratulate them.

Initially they claimed that they would be funding the $1.2B (now $2.15B) over the course of 4 years with about $200-300M per year. Either they will have to up that number or they will have to extend the number of years required to catch up the pension fund.

In the meantime there is concern that the S&P 500 could drop further in value. If you haven't read Jeremy Grantham's recent newsletter it is worth the read. If he turns out right, we could see another 30-40% price drop.

What that would mean for XLS is that their previously $1.2B underfunded pension, now $2.15B underfunded pension, could potentially be in excess of $3B. They won't be funding that in four years.

Given that and potential for declining revenues in the defense industry as the US government attempts to cut spending (I laughed too), this could put a damper on cash earnings over the next few years.

On the plus side XLS pays a nice quarterly dividend and the recent CEO purchase may help keep a floor to the price.

I'm going to maintain my outperform for amusement and because it may very well do so (I think the S&P 500 is overpriced too so outperforming an overpriced stock may still beat the market). But I'm not convinced this stock is dirt cheap as many others do.


Member Avatar harleytodd (60.04) Submitted: 12/13/2011 7:58:16 PM : Outperform Start Price: $7.66 XLS Score: +153.37

ITT defense & IT biz spinoff. $6B rev with $2B mkt cap = cheap. PE is 4 vs industry PE of 20. 4.5% yield. The market regularly undervalues spinoffs for a period of time so buy it now!

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