Is Rockwell Collins (COL) Poised for a Beat in Q1 Earnings?

Rockwell Collins Inc. COL, is slated to report first-quarter fiscal 2018 results on Jan 26, before the opening bell.

The aviation electronics maker posted in-line earnings in the last quarter. Impressively, Rockwell Collins surpassed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 2.61%.

Let’s take a detailed look at the factors influencing Rockwell Collins' quarterly results.

Why a Likely Positive Surprise?

Our proven model shows that Rockwell Collins 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 be able to beat estimates.

Zacks ESP: Earnings ESP for the company is +0.43%. This is a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Rockwell Collins carries a Zacks Rank #3, which when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell-rated) going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Factors at Play

Rockwell Collins remains the foremost global supplier of communications and avionics equipment for both commercial and military customers. The company’s balanced exposure to both types of customers allows it to use government funding to develop products for the dual-end market.

Particularly, the $700-billion defense bill policy has improved the outlook for defense stocks like Rockwell Collins manifold. Evidently, its share price gained 5.6% since Senate approved the bill, last September.

In the same month, Rockwell Collins entered into an agreement to be acquired by United Technologies Corporation for $30 billion. The deal is expected to create one of the world’s largest aircraft-equipment manufacturers.

Notably, shareholders of Rockwell Collins will be given all-cash consideration of $140 per share, reflecting a premium of nearly 7.5% from the company’s closing price of $130.29 on Sep 1, 2017. Interestingly, shares of Rockwell Collins is presently trading near the acquisition price but has not yet attained it. Considering this, investors even now have a possibility of gaining from this stock.

Moreover, even after announcement of its takeover, Azerbaijan Airlines selected Rockwell Collins in November 2017, to provide its global, high-speed broadband in-flight connectivity, overhead in-flight entertainment and a full suite of advanced avionics — including Rockwell Collins’ MultiScan ThreatTrack weather radar — for 10 Boeing 737 MAX aircraft.

We believe this contract will boost the company’s top line in the yet-to-be reported quarter. In line with this, the Zacks Consensus Estimate for the company’s fiscal first-quarter sales of $1.9 billion reflects a solid annual surge of 66.6%.

This shows the huge demand that Rockwells Collins’ products enjoy worldwide and is thus a treasured acquiree in the Aerospace-Defense industry.

Moreover the company’s B/E Aerospace buyout, which it completed in April 2017, has been adding value to its top and bottom-line growth since then. In fiscal 2017, its U.S. sales improved 18% as a result of improved accretions from this takeover. In line with this, we expect this acquisition to boost the company’s earnings in the first quarter as well and thus our consensus estimate for earnings of $1.53 per share reflects an annual growth of 27.5%.

Stocks that Warrant a Look

Here are a few other stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

Huntington Ingalls Industries, Inc. HII is expected to report fourth-quarter 2017 results on Feb 15. The company has an Earnings ESP of +3.43% and a Zacks Rank #2.

The Boeing Company BA is expected to report fourth-quarter 2017 results on Jan 31. The company has an Earnings ESP of +0.25% and a Zacks Rank #2.

Lockheed Martin Corp. LMT is expected to report fourth-quarter 2017 results on Jan 29. The company has an Earnings ESP of +0.31% and a Zacks Rank #2.

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