Textron Inc. (TXT) is set to report third-quarter 2014 results on Oct 17. Last quarter, the company had posted a positive earnings surprise of 36.17%. It is worth noting that Textron has outperformed the Zacks Consensus Estimate in two of the four preceding quarters with an average earnings beat of 0.58%.
Let us see how things are shaping up for this announcement.
Factors to Play This Past Quarter
This aerospace and defense company continues with its systematic inorganic growth initiatives along with the expansion of its product and service portfolio. The current sequestration wave has driven defense players like Textron to resort to acquisitions.
Year to date, Textron has wrapped up quite a few acquisitions, including TUG Technologies Corp. and Beech Holdings, LLC. In Jul 2014, the company’s business arm TRU Simulation + Training Inc. acquired ProFlight, LLC, a leading innovative and advanced pilot training service provider. The acquisition of Beech Holdings’ businesses is expected to contribute roughly $1.5 billion to the company’s 2014 revenues under the Textron Aviation division.
However, we prefer to remain cautious given the U.S. budget deficits and political uncertainty, along with intensifying competition. Growth by acquisition also runs integration risks.
Earnings Whispers?
Our proven model does not conclusively show that Textron will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.
Negative Zacks ESP: Textron has an Earnings ESP of -3.77%. This is because the Most Accurate estimate stands at 51 cents while the Zacks Consensus Estimate is pegged higher at 53 cents.
Zacks Rank: Textron has a Zacks Rank #4 (Sell) which when combined with the negative ESP makes a pretty bad case for the company.
We particularly caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Other Stocks to Consider
Here are some companies in the defense sector which you may consider instead, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Curtiss-Wright Corporation (CW) has an Earnings ESP of +2.30% and sports a Zacks Rank #1.
General Dynamics Corp. (GD) has an Earnings ESP of +2.09% and carries a Zacks Rank #2.
B/E Aerospace Inc. (BEAV) has an Earnings ESP of +1.74% and carries a Zacks Rank #2.
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