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We expect Northrop Grumman Corp. to beat expectations when it reports second quarter 2013 results on Jul 24.

Why a Likely Positive Surprise?

Our proven model shows that Northrop Grumman is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +0.59%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks #3 Rank (Hold): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Northrop Grumman’s Zacks Rank #3 (Hold) and 0.59% ESP makes us confident of a positive earnings beat on Jul 24, 2013.

What is Driving the Better Than Expected Earnings?

Northrop has a strong presence in Air Force, Space & Cyber Security programs. The company’s product line is well positioned in high priority categories, such as defense electronics, unmanned aircraft and missile defense.

Northrop Grumman is taking several initiatives to ensure further alignment with its customers' need in order to increase affordability and cost competitiveness. The company is working on establishing Aerospace Design Centers of Excellence at its various centers. These actions eye on leveraging capabilities in key areas of manned aircraft and unmanned systems. In order to improve its cost competitiveness, the company is closing and consolidating numerous facilities across the company.

Going forward, growth in domestic efforts will be driven by the Navy's Triton program with international growth supported by North Atlantic Treaty Organization’s Alliance Ground Surveillance and continuing efforts on Germany's EURO HAWK program. The company seems to be well positioned with a number of contracts secured this quarter.

Other Stocks to Consider

Northrop Grumman is not the only firm looking up this earnings season. We also see likely earnings beats coming from these three industry peers:

The Boeing Company , with Earnings ESP of +1.27% and a Zacks Rank #2 (Buy).

Embraer SA , with Earnings ESP of +6.35% and a Zacks Rank #3 (Hold).

General Dynamics Corp. , with Earnings ESP of +0.61% and a Zacks Rank #3 (Hold).
 

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