Leading commercial aircraft manufacturer, The Boeing Co. (BA), is set to release its third-quarter 2014 results before the opening bell on Oct 22, 2014. The company posted a positive earnings surprise of 19.8% in the preceding quarter. Boeing has surprised earnings in the last four quarters, with an average beat of 17.3%. Let's see how things are shaping up for this announcement.
Factors to Consider
The company seems likely to retain its title of the world's largest commercial airplane manufacturer, given its impressive track record in both innovation and fuel efficiency. Recently, it reported third-quarter 2014 deliveries of 186 commercial airplanes, approximately 9.4% higher than the year-ago figure. For the first nine months of the year, Boeing delivered 528 commercial jetliners, 10.9% higher than the year-ago level.
The company continued its dominance in the commercial aviation market through continuous award wins. We expect Boeing to notch up record jet deliveries in the future driven by growing passenger traffic in the Asia-Pacific region.
Boeing is also one of the major players in the defense business. Its deliveries in the defense and space business were 48 in third-quarter 2014 versus 43 in the comparable period last year.
The company announced its plans to further consolidate its defense business – a ploy to cut costs in a declining U.S. military budget environment. The company will relocate the majority of its defense services and support work out of Washington state to Oklahoma City and St. Louis. This transition will take around three years affecting about 2,000 of its 5,200 defense jobs in the Puget Sound region. The move will not affect Boeing's P-8A spy plane or KC-46 aerial refueling tanker programs.
The objective of this program is to enhance the company’s competitiveness in the market. It is also in sync with Boeing’s efforts to reduce overhead costs in the defense business.
Given the declining U.S. defense budget, the contractors are slashing costs to maintain a stable financial condition, diversifying their operations through strategic acquisitions, and focusing more on research and development activities to introduce new products.
Earnings Whispers?
Our proven model does not conclusively show that Boeing is likely to beat the Zacks Consensus Estimate 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) for this to happen. That is not the case here, as you will see below:
Negative Zacks ESP: Boeing has an earnings ESP of -1.52%. This is because the Most Accurate Estimate is $1.94 while the Zacks Consensus Estimate is pegged higher at $1.97.
Zacks Rank: Boeing’s Zacks Rank #2 (Buy) increases the predictive power of the ESP. However, we need to have a positive ESP to be confident of an earnings surprise.
On the other hand, we 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.
Other Stocks to Consider
Here are some companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
General Dynamics Corp. (GD) has an earnings ESP of +0.52% and holds a Zacks Rank #2.
Curtiss-Wright Corporation (CW) has an earnings ESP of +2.3% and sports a Zacks Rank #1.
Rockwell Collins Inc. (COL) has an earnings ESP of +2.38% and carries a Zacks Rank #3.
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