General Dynamics Corp. (GD) is set to release its fourth-quarter 2014 results before the opening bell on Wednesday, Jan 28, 2015. We expect the company to beat expectations when it reports its results.
In the preceding quarter, General Dynamics delivered a positive 7.33% earnings surprise. Also, the company has posted an average positive earnings surprise of 4.91% over the past four quarters. Let us see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that General Dynamics is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +1.91%. This is because the Most Accurate estimate stands at $2.14 per share and the Zacks Consensus Estimate stands a tad lower at $2.10. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.
Zacks Rank: The company currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating estimates.
Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of General Dynamics’ Zacks Rank #3 and +1.91% ESP makes us confident of a positive earnings beat this quarter.
What is driving the Better-than-Expected Earnings?
While U.S. defense spending is slowing down due to budget cutbacks, General Dynamics is focused on lowering costs to improve competitiveness and fuel bottom-line growth. These initiatives have yielded successful results. The company raised its 2014 full-year earnings guidance to $7.60–$7.70 per share from $7.40–$7.45 per share, in expectation of better margins.
Its focus on technological upgrades and enhanced product offering ensures a regular stream of contracts. In Nov 2014, General Dynamics’ unit, General Dynamics Land System-Canada was awarded a $253.4 million (C$287 million) contract by the Canadian government to upgrade Canadian LAV III vehicles, also known as LAV 6.0. In December, General Dynamics National Steel and Shipbuilding Co. (“NASSCO”), a unit of General Dynamics, won a $498.1 million contract from the U.S. Navy for designing and constructing Mobile Landing Platform Afloat Forward Staging Base.
Consistent contract wins along with a focus on cost savings and high-quality product offerings will pave the way for impressive results, going forward.
Other Stocks to Consider
General Dynamics is not the only firm looking up this earnings season. We also see likely earnings beats coming from these industry peers:
The Boeing Company (BA) has an Earnings ESP of +1.44% and carries a Zacks Rank #2.
Northrop Grumman Corporation (NOC) has an Earnings ESP of +4.05% and carries a Zacks Rank #3.
Textron Inc. (TXT) has an Earnings ESP of +12.16% and carries a Zacks Rank #3.
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