Spirit AeroSystems Holdings, Inc. (SPR) is set to release its fourth-quarter 2014 results on Tuesday, Feb 3. In the preceding quarter, Spirit AeroSystems delivered a positive 20.00% earnings surprise. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Spirit AeroSystems is likely to beat earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates, and Spirit AeroSystems has the right mix.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +7.79%. This is because the Most Accurate estimate is at 83 cents while the Zacks Consensus Estimate is lower at 77 cents. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Spirit AeroSystems currently carries a Zacks Rank #1.
The company’s Zacks Rank #1 and positive ESP make us reasonably confident of an earnings beat.
Note that stocks with Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
What is Driving the Better-than-Expected Earnings?
Wichita, KS-based Spirit AeroSystems is the leading first-tier aerostructures manufacturer in the world. Spirit AeroSystems’ performance is tied to that of the defense majors, particularly The Boeing Co. (BA) and General Dynamics Corp. (GD), as it supplies them with aircraft fuselages, propulsion systems and wing structures to name a few. The company’s backlog increased to a record $44 billion at the end of the third quarter compared with $41 billion at the end of the second quarter 2014.
The company is focused on lowering costs across the board and thereby boosting cash. Also, The Airbus Group’s A350 program – on which Spirit is a “design and build” partner – is expected to demonstrate impressive performance. Again, Spirit AeroSystems is associated with Boeing’s 737 commercial airline program. 737 is currently the best-selling single-aisle airplane with demand increasing each passing day. Hence, Boeing’s decision to ramp up the 737 Next Generation production rate in response to strong market demand will prove beneficial for Spirit AeroSystems as well.
Recently, the company has transferred the production of General Dynamics’ Gulfstream G650 and G280 wing programs located in Tulsa, OK to Triumph Group, Inc. (TGI). This transfer will benefit Spirit AeroSystems to further focus on its core markets of aerostructures for commercial and defense aircraft. The deal between the aerospace companies closed on Dec 30, 2014.
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