Aerospace and defense behemoth The Boeing Co. (BA) is set to release its fourth-quarter 2014 results before the opening bell on Wednesday, Jan 28. In the preceding quarter, Boeing delivered a positive 9.2% earnings surprise. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Boeing 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 Boeing has the right mix.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.44%. This is because the Most Accurate estimate is at $2.11 while the Zacks Consensus Estimate is pegged lower at $2.08. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Boeing currently carries a Zacks Rank #2.
The company’s Zacks Rank #2 and positive ESP make us reasonably confident of a positive 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?
In the race for supremacy in the commercial skies, the North American jet plane maker – Boeing − has surpassed its European rival Airbus in 2014 for the third consecutive year as the final delivery numbers are now in for the year. The fact remains that this aerospace and defense leader is flying high on the back of rising demand for its fuel-efficient commercial planes. Boeing once again reported industry record deliveries in 2014, retaining its position as the world’s biggest airplane maker, beating its own projection, driven by strong commercial numbers.
Even though Boeing nabbed the leading position in terms of deliveries, Airbus came out ahead on orders, signing a net 1,456 contracts versus 1,432 for Boeing. This can be attributed to the glitches Boeing faced with its much-hyped Dreamliner. After years of delays however, Boeing delivered its 787 at a rate of nearly 12 per month in the fourth quarter of 2014, up from about 9 a month for the rest of 2014.
In the defense arena, Boeing’s military aircraft and helicopter deliveries in 2014 were up to 184 from 171 in 2013 and 154 in 2012. The numbers were dominated by deliveries of 54 new-build CH-47 Chinooks and 45 new-build AH-64 Apaches, both of which were up significantly.
The Republican win in the mid-term election, Middle East tensions, the Obama administration’s major realignment along with the rising U.S. economy may turn out to be a catalyst for this sector, eventually benefiting Boeing. Moreover, under the new military budget, Boeing will secure $1.46 billion for 15 EA-18G Growler attack jets.
Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:
Textron Inc. (TXT) has an Earnings ESP of +12.16% and holds a Zacks Rank #3.
General Dynamics Corp. (GD) has an Earnings ESP of +1.91% and carries a Zacks Rank #3.
Northrop Grumman Corp. (NOC) has an Earnings ESP of +4.05% and holds a Zacks Rank #3.
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