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Can Raytheon (RTN) Keep the Earnings Streak Alive in Q2?
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Missile maker Raytheon Company will release second-quarter 2016 financial results before the market opens on Jul 28. In the prior quarter, Raytheon reported a positive earnings surprise of 5.15%. In fact, the company has beaten estimates in each of the trailing four quarters. Let’s see how things are shaping up for this announcement.
Our proven model shows that Raytheon 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 Raytheon has the right mix.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +8.82%. This is because the Most Accurate estimate stands at $1.85, while the Zacks Consensus Estimate is pegged lower at $1.70. This is a meaningful indicator of a likely positive earnings surprise.
Zacks Rank: Raytheon currently carries a Zacks Rank #3.
The combination of Raytheon’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.
Conversely, Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
What is Driving the Better-than-Expected Earnings?
In its missile business, Raytheon is likely to start witnessing an improvement from the second quarter, which will continue through the rest of the year. Raytheon’s Patriot missile-defense systems have been seeing a steady stream of buyers. Management stated that the Integrated Defense Systems (IDS) division, which includes Patriot, will likely report strong margins in the to-be-reported quarter as international Patriot programs continue to ramp up. The segment will likely return to generating 16–17% margins within the next 2–3 years, as international volumes ramp up and the company progresses on development programs.
On its first-quarter earnings call, Raytheon retained its 2016 sales forecast of $24 billion to $24.5 billion versus sales of $23.2 billion in 2015. The company, however, boosted its adjusted EPS forecast by 13 cents, thanks to a tax benefit from a new accounting standard for stock compensation. This is expected to reduce its effective tax rate for the whole year. Bookings in 2016 are expected to be in the $25 billion to $26 billion range.
For the second quarter, the Zacks Consensus Estimate for earnings is $1.70 a share, reflecting an increase of 3.26% year over year, while consensus revenues are pegged at $5.84 billion, implying a 0.11% year-over-year decrease.
Other Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that they too have the right combination of elements to post an earnings beat:
Northrop Grumman Corp. (NOC - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2. The company is scheduled to report quarterly results on Jul 27.
General Dynamics Corp. (GD - Free Report) has an Earnings ESP of +2.17% and a Zacks Rank #2. The company is scheduled to report quarterly results on Jul 27.
Orbital ATK Inc. has an Earnings ESP of +3.85% and a Zacks Rank #3. The company is expected to report quarterly results on Aug 4.
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Can Raytheon (RTN) Keep the Earnings Streak Alive in Q2?
Missile maker Raytheon Company will release second-quarter 2016 financial results before the market opens on Jul 28. In the prior quarter, Raytheon reported a positive earnings surprise of 5.15%. In fact, the company has beaten estimates in each of the trailing four quarters. Let’s see how things are shaping up for this announcement.
RAYTHEON CO Price and EPS Surprise
RAYTHEON CO Price and EPS Surprise | RAYTHEON CO Quote
Why a Likely Positive Surprise?
Our proven model shows that Raytheon 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 Raytheon has the right mix.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +8.82%. This is because the Most Accurate estimate stands at $1.85, while the Zacks Consensus Estimate is pegged lower at $1.70. This is a meaningful indicator of a likely positive earnings surprise.
Zacks Rank: Raytheon currently carries a Zacks Rank #3.
The combination of Raytheon’s Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.
Conversely, Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
What is Driving the Better-than-Expected Earnings?
In its missile business, Raytheon is likely to start witnessing an improvement from the second quarter, which will continue through the rest of the year.
Raytheon’s Patriot missile-defense systems have been seeing a steady stream of buyers. Management stated that the Integrated Defense Systems (IDS) division, which includes Patriot, will likely report strong margins in the to-be-reported quarter as international Patriot programs continue to ramp up. The segment will likely return to generating 16–17% margins within the next 2–3 years, as international volumes ramp up and the company progresses on development programs.
On its first-quarter earnings call, Raytheon retained its 2016 sales forecast of $24 billion to $24.5 billion versus sales of $23.2 billion in 2015. The company, however, boosted its adjusted EPS forecast by 13 cents, thanks to a tax benefit from a new accounting standard for stock compensation. This is expected to reduce its effective tax rate for the whole year. Bookings in 2016 are expected to be in the $25 billion to $26 billion range.
For the second quarter, the Zacks Consensus Estimate for earnings is $1.70 a share, reflecting an increase of 3.26% year over year, while consensus revenues are pegged at $5.84 billion, implying a 0.11% year-over-year decrease.
Other Stocks that Warrant a Look
Here are some other companies you may want to consider as our model shows that they too have the right combination of elements to post an earnings beat:
Northrop Grumman Corp. (NOC - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2. The company is scheduled to report quarterly results on Jul 27.
General Dynamics Corp. (GD - Free Report) has an Earnings ESP of +2.17% and a Zacks Rank #2. The company is scheduled to report quarterly results on Jul 27.
Orbital ATK Inc. has an Earnings ESP of +3.85% and a Zacks Rank #3. The company is expected to report quarterly results on Aug 4.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>