Earnings Preview: Textron Inc.

Textron Inc. ( TXT - Analyst Report ) is slated to release its fourth quarter 2012 financial results before the market bell on Jan 23, 2013. In the prior quarter, the aerospace and defense company reported a -7.69% negative earnings surprise. Textron presently retains a Zacks Rank #3 (Hold). Let’s see how things are shaping up at Textron prior to this announcement.

Factors to Consider This Quarter

Given the uncertainty surrounding the cutbacks in defense spending, we believe Textron’s government order book will continue to witness significant contractions in the subsequent quarters.

The company failed to accumulate significant contracts in the past quarter and there is a fair possibility that the backlog orders in its Cessna and Bell segment will decline from the comparable year ago period.

Even though there are a possibility of improvement in the commercial jetliners in the long run, the current reduced access to the credit markets has also led to lower spending by commercial air carriers further accentuating the prolonged weakness in the commercial jet market.

Moreover, execution risks associated with several unmanned aerial projects at Textron Systems and persistent tepid demand conditions in the automotive markets of Asia and Europe renders a pessimistic outlook for Textron in the near term.

Earnings Whispers

Accordingly, our proven model does not conclusively show that Textron Inc. is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings Surprise Projection (“ESP”) and a Zacks Rank of #1, 2 or 3 for this to happen. This is not the case here.

Textron’s Zacks Rank #3 (Hold) complicates the forecasting power of ESP as the Zacks #3 Rank when combined with a negative ESP makes surprise prediction difficult. We thus caution investors against the stock going into the earnings announcement, especially with the company observing negative estimate revisions momentum.

Other Stocks to Watch

Here are some other companies you may want to consider on the basis of our model which shows that they have the right combination of elements to post an earnings beat this quarter:

United Technologies Corporation ( UTX - Analyst Report ) has Earnings ESP of +2.94% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Jan 23.

The Boeing Company ( BA - Analyst Report ) has break even Earnings ESP and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Jan 30.

L-3 Communications Holdings Inc. ( LLL - Analyst Report ) has Earnings ESP of +0.94% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter results on Jan 30.