Huntington Ingalls Industries, Inc. (HII), the largest military shipbuilder in the U.S., is set to report its second-quarter 2014 results on Aug 7 before the market opens. Last quarter, it posted a positive surprise of 10.37%.
In fact, the company has delivered positive earnings surprises in the trailing four quarters, with an average beat of 28.61%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Huntington Ingalls is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen.
Positive Zacks ESP: This company currently has an Earnings ESP of +2.20%. This is because the Most Accurate estimate stands at $1.86 per share, while the Zacks Consensus Estimate is pegged at $1.82.
Zacks Rank: Huntington Ingalls carries a Zacks Rank #2 (Buy) which when combined with a +2.20% ESP makes us confident of an earnings beat.
Note that stocks with Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
Factors to Consider this Quarter
The largest military shipbuilder in the U.S., Huntington Ingalls is the prime industrial employer in Virginia. Huntington Ingalls, originally an affiliate of Northrop Grumman Corp. (NOC), was spun off in Mar 2011. It operates major shipyards in Louisiana, Mississippi and Virginia. Despite the defense budget austerity, we believe Huntington Ingalls is well-positioned backed by its effective execution skills and diverse product offerings.
The defense sector is also trying to plug the challenges with acquisitions and business diversifications besides boosting international orders. During the quarter, Huntington Ingalls, noted for its nuclear and non-nuclear submarines, acquired UniversalPegasus International Holdings or UPI. The latter is a provider of engineering and project management services to the domestic and international energy markets. The deal marks Huntington Ingalls’ entry into the oil and gas market.
Huntington Ingalls is planning to explore opportunities for the redevelopment of the Avondale shipyard in Louisiana with Kinder Morgan Energy Partners, L.P. (KMP). Avondale, located on the Mississippi River, offers unmatched access to major markets by truck, rail and sea, making it attractive for many uses.
Stock to Consider
Pentagon’s prime contractor and the world’s largest defense company, Lockheed Martin Corp. (LMT) reported a forecast-beating 4.5% rise in second-quarter 2014 earnings per share, backed by strong operational performance. The company raised its 2014 earnings guidance, reflecting lower pension costs and an improved outlook for its space unit. Lockheed also carries a bullish Zacks Rank #2 (Buy).
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