L-3 Communications Holdings Inc. (LLL) is scheduled to report fourth-quarter 2014 results before the opening bell on Jan 29. Last quarter, L-3 Communications posted earnings in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for the fourth quarter.
Factors to Consider this Quarter
L-3 Communications Holdings operates through its wholly owned subsidiary, L-3 Communications Corporation (L-3). L-3 Communications is a leading supplier of a broad range of aerospace and defense products.
Revenues from all the four business segments of L-3 Communications declined in the first nine months of 2014. Sales from Aerospace and Communication Systems depicted a drop of more than 7%. As market conditions have not improved strikingly since previous releases, these divisions are likely to report soft numbers in the fourth quarter as well.
The company won a five-year contract in the fourth quarter from the National Geospatial-Intelligence Agency. Valued at $218 million, the contract calls for services like Information Technology Enterprise Managed Services, transport services for engineering and operations and sustainment services to the agency.
However, L-3 Communications reduced its 2014 sales target from the Department of Defense to 60% from 61% in 2013 owing to budget sequestration.
Earnings Whispers?
Our proven model does not conclusively show that L-3 Communications 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 +2.74%. This is because the Most Accurate Estimate is at $2.25 per share while the Zacks Consensus Estimate is at $2.19 per share.
Zacks Rank: L-3 Communications’ Zacks Rank #4 (Sell) when combined with a +2.74% ESP makes an earnings beat inconclusive.
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 aerospace and defense space you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this season:
The Boeing Company (BA) has an earnings ESP of +1.44% and a Zacks Rank #2.
General Dynamics Corporation (GD) has an earnings ESP of +1.91% and a Zacks Rank #3.
Northrop Grumman Corporation (NOC) has an earnings ESP of +4.05% and a Zacks Rank #3.
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