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L-3 Communications (LLL) Q3 Earnings: A Beat in Store?
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L-3 Communications Holdings, Inc. is scheduled to release third-quarter 2016 results before the opening bell on Oct 27.
In the preceding quarter, L-3 Communications posted a positive earnings surprise of 11.90%. It is worth noting that L-3 Communications has outperformed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 16.86%.
Let’s see how things are shaping up prior to this announcement.
Our proven model shows that L-3 Communications is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: L-3 Communications has an Earnings ESP of +2.75%. That is because the Most Accurate estimate is $1.87 while the Zacks Consensus Estimate is pegged lower at $1.82. This is a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: L-3 Communications has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.
Also, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Meanwhile, L-3 Communications’ combination of a Zacks Rank #3 and +2.75% ESP makes us reasonably certain of an earnings beat.
What’s Driving the Better-Than Expected Earnings?
L-3 Communications’ recent initiatives have helped the company deliver solid results in new pursuits like defense and commercial aviation. These strategies also boosted the company’s legacy businesses which include unmanned systems equipment and secure communications such as ROVER and communication systems for Virginia-class submarines.
As far as third-quarter expectations for L-3 Communications’ operating results are concerned, management estimates sales in the range of $2.5–$2.6 billion, reflecting flat organic growth. Further, free cash flow is projected in the band of $100–$200 million with a book to bill ratio of 1.0.
Earnings per share are expected to be between $1.75 and $1.85 and a low margin of 9%. Compared to the year-ago quarter’s results, the company expects to witness a decline in the third-quarter operating margin and EPS figures. However, we should remind investors that the company witnessedthe highest quarterly margin in the third quarter of 2015 on account of an abnormally high margin in aerospace systems.
On an overall basis, management is confident about responding to market opportunities and capitalizing on a steady demand environment, which would duly get reflected in the yet-to-be reported quarter’s numbers.
Among the highlights of the third quarter, L-3 Communications clinched a few significant contracts. Also, the company received a modification contract, worth $163.3 million, from the U.S. Navy to provide support services for about 200 T-45 aircraft. The company also received a foreign military sales (FMS) contract to supply eight WESCAM MX-10D electro-optical and infrared (EO/IR) designating turrets to a Middle Eastern nation’s Ministry of Defense.
L-3 Communications also received a contract from All Nippon Airways (ANA) to build and deliver an Airbus A320 Full Flight Simulator (FFS).
However, management expects a contraction in demand for its commercial training solutions during the third quarter, wherein a strong uptake was observed in aircraft full flight simulators last quarter.
Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $2.37 a share, reflecting a decrease of 12.87% year over year, while the consensus for revenues is $2.56 billion, implying a 9.09% year-over-year decline.
Stocks to Consider
Here are a few 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:
General Dynamics Corp. (GD - Free Report) has an earnings ESP of +0.84% and a Zacks Rank #3. The company is scheduled to report quarterly results on Oct 26.
The Boeing Company (BA - Free Report) has an earnings ESP of +0.76% and a Zacks Rank #3. The company is scheduled to release results on Oct 26.
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L-3 Communications (LLL) Q3 Earnings: A Beat in Store?
L-3 Communications Holdings, Inc. is scheduled to release third-quarter 2016 results before the opening bell on Oct 27.
In the preceding quarter, L-3 Communications posted a positive earnings surprise of 11.90%. It is worth noting that L-3 Communications has outperformed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 16.86%.
Let’s see how things are shaping up prior to this announcement.
L-3 COMM HLDGS Price and EPS Surprise
L-3 COMM HLDGS Price and EPS Surprise | L-3 COMM HLDGS Quote
Why a Likely Positive Surprise?
Our proven model shows that L-3 Communications is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: L-3 Communications has an Earnings ESP of +2.75%. That is because the Most Accurate estimate is $1.87 while the Zacks Consensus Estimate is pegged lower at $1.82. This is a meaningful and leading indicator of a likely positive earnings surprise. Please check our Earnings ESP Filter that enables you to find stocks that are expected to come out with earnings surprises.
Zacks Rank: L-3 Communications has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.
Also, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Meanwhile, L-3 Communications’ combination of a Zacks Rank #3 and +2.75% ESP makes us reasonably certain of an earnings beat.
What’s Driving the Better-Than Expected Earnings?
L-3 Communications’ recent initiatives have helped the company deliver solid results in new pursuits like defense and commercial aviation. These strategies also boosted the company’s legacy businesses which include unmanned systems equipment and secure communications such as ROVER and communication systems for Virginia-class submarines.
As far as third-quarter expectations for L-3 Communications’ operating results are concerned, management estimates sales in the range of $2.5–$2.6 billion, reflecting flat organic growth. Further, free cash flow is projected in the band of $100–$200 million with a book to bill ratio of 1.0.
Earnings per share are expected to be between $1.75 and $1.85 and a low margin of 9%. Compared to the year-ago quarter’s results, the company expects to witness a decline in the third-quarter operating margin and EPS figures. However, we should remind investors that the company witnessedthe highest quarterly margin in the third quarter of 2015 on account of an abnormally high margin in aerospace systems.
On an overall basis, management is confident about responding to market opportunities and capitalizing on a steady demand environment, which would duly get reflected in the yet-to-be reported quarter’s numbers.
Among the highlights of the third quarter, L-3 Communications clinched a few significant contracts. Also, the company received a modification contract, worth $163.3 million, from the U.S. Navy to provide support services for about 200 T-45 aircraft. The company also received a foreign military sales (FMS) contract to supply eight WESCAM MX-10D electro-optical and infrared (EO/IR) designating turrets to a Middle Eastern nation’s Ministry of Defense.
L-3 Communications also received a contract from All Nippon Airways (ANA) to build and deliver an Airbus A320 Full Flight Simulator (FFS).
However, management expects a contraction in demand for its commercial training solutions during the third quarter, wherein a strong uptake was observed in aircraft full flight simulators last quarter.
Overall, for the third quarter, the Zacks Consensus Estimate for earnings is pegged at $2.37 a share, reflecting a decrease of 12.87% year over year, while the consensus for revenues is $2.56 billion, implying a 9.09% year-over-year decline.
Stocks to Consider
Here are a few 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:
General Dynamics Corp. (GD - Free Report) has an earnings ESP of +0.84% and a Zacks Rank #3. The company is scheduled to report quarterly results on Oct 26.
Huntington Ingalls Industries, Inc. (HII - Free Report) , slated to report on Nov 3, has an earnings ESP of +2.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Boeing Company (BA - Free Report) has an earnings ESP of +0.76% and a Zacks Rank #3. The company is scheduled to release results on Oct 26.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>