Raytheon Company (RTN) is scheduled to report third-quarter 2014 results before the opening bell on Oct 23.
Last quarter, Raytheon posted a negative earnings surprise of 11.32%. On an average, Raytheon has posted a 6.38% positive surprise in the last four quarters. Let’s see how things are shaping up for the third quarter.
Factors to Influence Q3 Results
Massachusetts-based Raytheon has a diversified portfolio of defense and military products like missiles, radars, sensors, surveillance equipment and the like.
Raytheon generates a large part of its revenues from the U.S. Department of Defense (DoD). With the cloud of budget uncertainty hovering over the U.S economy, foreign military sales (FMS) contracts continue to be the vital growth driver for Raytheon.
In terms of contract wins, Raytheon has been able to clinch a few modest awards during the September quarter. The 2014 fiscal budget puts emphasis on Raytheon’s prominent programs including Missile and Space Systems which will boost the company’s revenue stream. Its reliance on Patriot with some minor upgrades continues to find support from the Congress. In Sep 2014, Raytheon won a $109 million service contract for the Patriot defense system from the U.S. Army Aviation and Missile Command, Redstone Arsenal, AL. The Patriot sustainment contract calls upon Raytheon to keep the system in readiness for the U.S. Army and its FMS customers.
However, there is no assurance that the company will continue to score high-value contracts at regular intervals. In addition, Raytheon faces tough competition from various players in the defense industry.
Earnings Whispers?
Our proven model does not conclusively show that Raytheon will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat consensus estimates. That is not the case here as you will see below.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.86%. This is because the Most Accurate Estimate is at $1.58 per share while the Zacks Consensus Estimate is at $1.61 per share.
Zacks Rank: Raytheon’s Zacks Rank #4 (Sell) when combined with a -1.86% ESP makes an earnings beat extremely unlikely.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some stocks in the same industry you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:
General Dynamics Corporation (GD) has an earnings ESP of +0.52% and a Zacks Rank #1 (Strong Buy).
Curtiss-Wright Corporation (CW) has an earnings ESP of +1.14% and a Zacks Rank #2 (Buy).
Rockwell Collins Inc. (COL) has an earnings ESP of +2.38% and a Zacks Rank #3 (Hold).
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