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Value Line has initiated coverage of Exelis Inc. (XLS) in The Value Line Investment Survey.  Exelis is a manufacturer of command, control, communication, computer, intelligence, surveillance and reconnaissance products, as well as a conveyor of technical services that are supplied to military, government, and commercial customers on a global scale. The company is headquartered out of McLean, Virginia, and is led by CEO and President David F. Melcher.

Exelis is the result of a three-way spinoff of the International Telephone & Telegraph company (ITT) that took place in 2011. The spin-off resulted in the creation of Xylem Inc. (XYL), a water technology and services company, ITT Corp., a global manufacturing supplier, and Exelis Inc., the global aerospace, defense, and information services  company that exists today. The deal closed in October of 2011, at which time the company began trading on the New York Stock Exchange under the ticker “XLS”. Some of its largest customers to date include the U.S. Department of Defense and other government intelligence agencies with which it establishes contracts to perform a variety of technical services.

The company operates under two segments, each of which contributed somewhat equally to its $4.8 billion revenue total in 2013. The first, C4ISR Electronics and Systems, provides defense companies with ISR systems, integrated electronic warfare systems, radar and sonar systems, space systems, and communications solutions, while the Technical Services segment aids with system integration, network design, and advanced engineering and logistics for similar bodies of government.

In December of 2013, the company’s Board of Directors approved a plan for a spinoff of its own. It would entail breaking off its asset management, logistics, and supply-chain management services into a business referred to as “Mission Systems”. Although this deal still requires final approval by the Board, we would be hard pressed to expect any material change in the story as 2014 progresses.

Meanwhile, the company should continue stressing its core strengths, such as operating performance and efficiency, strong customer relationships, and its diverse portfolio. Indeed, in 2013, Exelis was able to reduce its workforce to about 17,200 people by consolidating its total facilities. And still, it offers a broad range of international aircraft, naval, and space systems that are worthwhile in a particularly competitive industry.

But the competitive nature of the industry presents risk. Exelis’ customers have vast spending power. However, about 85% of all revenues generated by the company in 2013 came from products and services sold to the U.S. Government. Under the instance that federal spending is affected by the state of the U.S. Economy or new measures of fiscal policy, the top line could suffer to a material degree. The government has the luxury of being able to terminate most contracts at the drop of a hat, as well, and this creates an even greater danger when considering the amount of cash assets that go into creating products and services that operate within its ever-changing regulatory guidelines.

Exelis stock is best suited at this time for investors seeking exposure to the domestic defense industry. It incorporates an above-average dividend yield for income-driven investors, and possesses a solid balance sheet that supports solid growth potential over the long haul. Long-term debt makes up a mere 28% of total capitalization as of March 31st, 2014, and the company’s Beta leads us to expect that it is a solid option for risk-averse accounts.

For a more detailed look at Exelis Inc. and the particular investment merits of this stock, subscribers should examine our full report in The Value Line Investment Survey.

At the time of this article’s writing, the author did not have a position in any of the stocks mentioned.