Defense major Northrop Grumman Corp. NOC is set to release its first-quarter 2015 results before the opening bell on Apr 29. In the preceding quarter, Northrop Grumman delivered a positive 1.80% earnings surprise. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Northrop Grumman 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 Northrop Grumman has the right mix.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.33%. This is because the Most Accurate estimate is at $2.29 while the Zacks Consensus Estimate is pegged lower at $2.26. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Northrop Grumman currently carries a Zacks Rank #3.
The company’s Zacks Rank #3 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's Driving the Better-than-Expected Earnings?
The company has a strong presence in the Air Force, Space & Cyber Security programs. Northrop’s product line is well positioned in high-priority categories, such as, defense electronics, unmanned aircraft and missile defense.
In response to asymmetric terrorist threats, the emphasis appears to have shifted to high-tech intelligence equipment, replacing demand for conventional big guns and heavy armor. Northrop Grumman is bringing more focus to its airborne and space Intelligence, Surveillance, Reconnaissance (“ISR”) business by realigning its divisions.
During the quarter, the defense giant announced that it has split its Intelligence, Surveillance, Reconnaissance and Targeting Systems (“ISR&TS”) division into two new entities: Airborne Intelligence, Surveillance Reconnaissance and Targeting Systems, and Space Intelligence, Surveillance & Reconnaissance Systems.
In particular, the emphasis is on ISR systems, advanced electronics and software development technologies. Northrop Grumman is the proud owner of the popular Global Hawk, an unmanned system with the ability to transform itself into an operational weapons system when required. Northrop also boasts products like the E-2D Advanced Hawkeye, which provides 360-degree surveillance at all times.
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:
General Dynamics Corp. GD with an Earnings ESP of +0.52% and a Zacks Rank #2.
Huntington Ingalls Industries, Inc. HII with an Earnings ESP of +2.91% and a Zacks Rank #3.
Peer Release
Lockheed Martin Corp. LMT posted first-quarter 2015 earnings of $2.74 per share, comfortably surpassing the Zacks Consensus Estimate of $2.48 by 10.5%. Earnings in the reported quarter however declined 4.5% from $2.87 per share a year ago, as lower fighter jet demand led to less revenue.
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