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Will Boeing (BA) Miss Earnings Estimates?

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Aerospace and defense behemoth The Boeing Co. (BA - Free Report) is set to release its third quarter 2013 results before the market opens on Wednesday, Oct 23.

Last quarter, Boeing posted a 5.70% positive surprise on the back of a solid performance across the board. Let’s see how things are shaping up for the third quarter.

Factors to Consider this Quarter

Despite the many technical glitches plaguing the much-hyped Dreamliner, the company remains well on track with its robust backlog and deliveries. Recently, Boeing announced that its commercial delivery during the third quarter accelerated 14.1% from the year-ago period as the pace of deliveries for its 787 Dreamliner nearly doubled.

Meanwhile, Boeing’s deliveries in the defense and space business numbered 43 in the third quarter of 2013 compared with 50 in the third quarter of 2012 and 31 in the second quarter 2013. Headwinds in the global airline industry and cutbacks in the U.S. defense budget have certainly shaken the confidence of many investors. Budget deficits and political uncertainty make future defense budgets vulnerable to cutbacks. The threat of sequestration has created significant planning difficulties for the customers and the entire aerospace industry, thereby leading to a decline in orders.

However, looking at its accounts, Boeing’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. Its diversified revenue stream provides a steady earnings stream leading to strong cash flows.

Earnings Whispers?

Our proven model does not conclusively show that Boeing will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. Unfortunately this is not the case here as elaborated below.

Negative Zacks ESP: This is because the Most Accurate estimate stands at $1.53, while the Zacks Consensus is higher at $1.54. This results in a difference of -0.65%.

Zacks Rank: Boeing’s Zacks Rank #3 (Hold) however complicates the predictive power of ESP. We also need to have a positive ESP to be confident of an earnings surprise call. We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks to Consider

However, we see likely earnings beats coming from these 3 companies from the same industry:

Lockheed Martin Corp. (LMT - Free Report) , with Earnings ESP of +2.21% and a Zacks Rank #1 (Strong Buy).

Northrop Grumman Corp. (NOC - Free Report) , with Earnings ESP of +2.21% and a Zacks Rank #2 (Buy).

General Dynamics Corp. (GD - Free Report) , with Earnings ESP of +1.80% and a Zacks Rank #3 (Hold).


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