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GE, HON Q2 Earnings on Jul 20: Here are the Key Predictions

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The April-June quarter of 2018 was plagued with worries, arising from the escalation of the trade war between the United States and other foreign nations, especially China. Though tariffs were imposed on the import of several goods for protecting the interest of U.S. domestic industries, it made many companies deal with higher raw material costs. Despite these issues, the strengthening global economy and the strong growth potential of the United States, along with favorable changes in its tax policy, have been well received by the markets. In the second quarter, the S&P 500 gained 2.9% while Nasdaq and NYSE witnessed an increase of 6.3% and 0.4%, respectively.

While many banking results have impressed with their results so far, important releases in this week and the next are going to be a major determinant in the movements of the U.S. equity market. We group the U.S. equity universe into 16 sectors.

Per the Earnings Outlook report published on Jul 19, roughly 9.6% of the S&P 500 companies have reported their results. So far, the group’s earnings have increased 23% year over year while its revenues have expanded 10%. Beat was measured at 89.6% for earnings and 83.3% for revenues.

For the second quarter, as a whole, earnings of the S&P 500 group is projected to grow 20.4% year over year while revenues are anticipated to increase 8.3%.

We believe that it will be interesting to watch how the earnings season unfolds for the Conglomerates sector. So far, none of the conglomerates have reported their results for the second quarter of 2018.

The sector’s earnings are projected to decline 12.6% year over year in the second quarter as compared with 5.6% growth registered in the last reported quarter. Revenues are anticipated to grow 4.3%, below 7% recorded in the first quarter.

What’s in Store for 2 Conglomerates: GE & HON?

Below, we discuss briefly the expectations from two conglomerate stocks, slated to report their numbers for the second quarter tomorrow, before the market opens.

General Electric Company (GE - Free Report) : This industrial conglomerate delivered better-than-expected results in two of the last four quarters while lagging estimates in the other two. Average earnings surprise was a positive 3.27%.

General Electric Company Price, Consensus and EPS Surprise
 

General Electric Company Price, Consensus and EPS Surprise | General Electric Company Quote

Currently, General Electric carries a Zacks Rank #4 (Sell). Pricing issues in Renewable Energy and weakness in Power segment, due to tough operating conditions, might be concerning. However, rising passenger air travel (global) and growth in unit order will likely boost the Aviation segment. Renewable Energy segment will gain from unit order growth.

Also, the restructuring actions, announced in the second quarter of 2018, are likely to evolve General Electric into a high-tech industrial company — focused on Aviation, Power and Renewable Energy.

The Zacks Consensus Estimate for the company’s Industrial segment revenues in the to-be-reported quarter is currently pegged at $28,009 million, reflecting growth of 2.2% from the last reported quarter’s figure of $27,395 million. Profit for the industrial segment is likely to increase 21.9%, sequentially, to $3,262 million.

Over the past 60 days, the Zacks Consensus Estimate for the second quarter has remained stable at 18 cents per share. (Read more: General Electric to Report Q2 Earnings: What to Expect?)

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Honeywell International Inc. (HON - Free Report) : The company recorded better-than-expected results in each of the trailing four quarters, with an average positive earnings surprise of 1.49%.

Honeywell International Inc. Price, Consensus and EPS Surprise
 

Honeywell International Inc. Price, Consensus and EPS Surprise | Honeywell International Inc. Quote

Our proven model provides some idea about the stocks that are about to release their earnings results. Per the model, a stock needs a combination of a positive Earnings ESP (the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate) and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) for a likely earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Currently, Honeywell carries a Zacks Rank #2 and has an Earnings ESP of +0.16%. The company’s initiatives to introduce innovative products, and strengthening demand in all end-markets will be a boon. You can see the complete list of today’s Zacks #1 Rank stocks here.

For the second quarter, the Zacks Consensus Estimate for the company’s Aerospace, Home and Building Technologies, and Performance Materials and Technologies segments are currently pegged at $3,962 million, $2,557 million and $3,741 million, respectively, higher than the corresponding tallies of $3,546 million, $2,269 million and $2,353 million reported in the last reported quarter.

Over the past 60 days, the Zacks Consensus Estimate for the second quarter increased 0.5% to $2.01. (Read more: Honeywell to Post Q2 Earnings: Another Beat in Store?)

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