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Huntington Ingalls (HII) Q2 Earnings: A Beat in the Cards?

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Huntington Ingalls Industries, Inc. (HII - Free Report) is set to release second-quarter 2017 results on Aug 3 before the opening bell.

Last quarter, the company posted a negative earnings surprise of 31.25%. However, the company surpassed the Zacks Consensus Estimate in two of the past four quarters, with an average positive earnings surprise of 3.04%.

Let’s see how things are shaping up at the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Huntington Ingalls 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, and Huntington Ingalls has the right mix.

Zacks ESP: Earnings ESP for the company is +4.96%. This is because the Most Accurate estimate stands at $2.75, higher than the Zacks Consensus Estimate of $2.62. 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: Huntington Ingalls carries a Zacks Rank #2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat this quarter.

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

Being the U.S.’ largest military shipbuilder, Huntington Ingalls’ first-quarter 2017 results reported solid performance in shipbuilding, which is expected to reflect in the second-quarter results as well.

In fact the company clinched quite a notable contract this quarter, which, in turn, is likely to boost second-quarter revenue growth. In particular, Huntington Ingalls won a modification contract worth $3 billion from the U.S. Navy to procure the detail, design and construction of the Landing Helicopter Assault (LHA) Replacement (LHA(R)) Flight 1 Amphibious Assault Ship (LHA 8).

The company’s CVN 72 Lincoln aircraft carrier fleet was being refueled and recapitalized in the beginning of the to-be-reported quarter, while management projected to redeliver it to the Navy by May 2017. We can expect further updates on this process once Huntington Ingalls releases its second-quarter results.

On the flip side, management expects no near-term improvement in the company’s relatively weak working capital performance. This might weigh down on the soon-to-be-reported quarter’s outcome.                     

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.62, reflecting a 12.93% improvement year over year. The Zacks Consensus Estimate for revenues is $1.79 billion, implying a 5.03% increase.

Other Stocks that Warrant a Look

Here are a few other defense stocks worth considering on the basis of our model which shows that they have the right combination to pull off a beat.

Transdigm Group Inc. (TDG - Free Report) is expected to report quarterly results on Aug 8. The company has an Earnings ESP of +1.01% and a Zacks Rank #2.

Leidos Holdings, Inc. (LDOS - Free Report) is expected to report quarterly results on Aug 3. The company has an Earnings ESP of +1.30% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit AeroSystems, Inc. (SPR - Free Report) is expected to report quarterly results on Aug 2. The company has an Earnings ESP of +3.33% and a Zacks Rank #3.

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