Rockwell Collins Inc. (COL) is set to release its fourth-quarter fiscal 2014 results before the opening bell on Friday, Oct 31. We expect the company to beat expectations when it reports its earnings results on the day.
In the preceding quarter, Rockwell Collins had delivered a positive 0.85% earnings surprise. Also, the company has maintained an average positive earnings surprise of 0.14% 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 Rockwell Collins is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +2.38%. This is because the Most Accurate Estimate stands at $1.29 per share and the Zacks Consensus Estimate stands at $1.26, resulting in a difference of +2.38%. This is a meaningful and leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: The company currently has a Zacks Rank #3 (Hold). Note that stocks with Zacks Rank #1, 2 and 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.
The combination of Rockwell Collins’ Zacks Rank #3 and +2.38% ESP makes us confident of an earnings beat.
What is driving the Better-than-Expected Earnings?
A leading global supplier of communications and avionics equipment for both commercial and military customers, Rockwell Collins is committed to maintaining a stable liquidity position. A stable liquidity position enables the company to pursue several investor-friendly moves, including share buybacks and payment of regular dividends. In Sep 2014, Rockwell Collins announced athat its board has approved an additional $500 million to expand the company's share repurchse program.
While other defense players like Raytheon Company (RTN) along with Rockwell Collins are facing the brunt of sequestration, Rockwell Collins’ balanced exposure to both defense and commercial markets has allowed it to use government funding in developing products for the dual-end market. This leads to higher volume sales, as recognized in the third quarter of FY14, which in turn creates economies of scale in cost-sensitive government contracts.
The company has won a decent number of contracts in the fourth quarter of FY14. In Sep 2014, Rockwell Collins was selected by Embraer SA (ERJ) to supply the EP-80 Image Generator and its accompanying database. In August, the company was selected by Scoot Pte Ltd., a subsidiary of Singapore Airlines, to provide it with Dispatch 100 avionics service along with an asset management program.
Apart from these contract wins, the company continues to face rising demand for its ARINC vMUSE Enterprise, which is commonly used by airports during the process of passenger check-ins. In the light of these contract wins and a strong third-quarter FY14, the company has lifted its earnings and revenues outlook for FY15.
Another Stock to Consider
Rockwell Collins is not the only firm looking up this earnings season. We also see a likely earnings beat coming from this industry peer:
Triumph Group, Inc. (TGI) has an Earnings ESP of +0.71% and carries a Zacks Rank #3.
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