Textron Inc. (TXT) is slated to report its fourth-quarter 2014 results on Jan 28, 2015. Last quarter, the company had posted positive earnings surprise of 13.21%. Textron has outperformed the Zacks Consensus Estimate in three of the four preceding quarters with an average earnings beat of 10.27%.
Let us see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Textron is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +12.16%. This is because the Most Accurate estimate stands at 83 cents per share and the Zacks Consensus Estimate stands lower at 74 cents. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank: The company currently has a Zacks Rank #3 (Hold). Note that stocks carrying Zacks Rank #1 (Strong Buy), 2 (Buy) and 3 have a significantly higher chance of beating estimates.
Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of Textron’s Zacks Rank #3 and +12.16% ESP makes us confident of a positive earnings beat this quarter.
Factors at Play This Quarter
The company witnesses constant demand for its Bell helicopters. In Oct 2014, Textron’s Bell Helicopters reported the first European sale of Bell 429 Wheeled Landing Gear. In November, the company reported strong sales of Bell 407GX in China. The company also signed a letter of intent with Reignwood Investment, Ltd. for the delivery of 50 units of Bell 505 Jet Ranger X aircraft. Apart from China and Europe, Textron reported a boost in demand from the Middle East as well. Bell commercial is expected to be significantlyaccretive to the top line in 2015.
Textron witnesses robust demand for other products as well. In October, Textron Systems won a four-year contract from the U.S. Air Force worth $43.6 million for the upgrade of over 500 AN/USM-670A Joint Service Electronic Combat Systems Tester systems.
The company has a strong presence in diverse areas including business jets and other general aviation aircraft, helicopter, aircraft engines, golf carts, turf maintenance equipment, electronic test equipment and blow-molded fuel tanks, which along with its focus on technological innovations and new product offerings, ensures a regular flow of contracts.
Other Stocks to Consider
Here are some other companies in the defense sector which you may consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:
Northrop Grumman Corporation (NOC) has an Earnings ESP of 4.05% and carries a Zacks Rank #3.
The Boeing Company (BA) has an Earnings ESP of +1.44% and carries a Zacks Rank #2.
General Dynamics Corporation (GD) has an Earnings ESP of +1.91% and carries a Zacks Rank #3.
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