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Northrop Grumman (NOC) to Beat Earnings on Steady Contracts

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Northrop Grumman Corporation (NOC - Free Report) is slated to release its second quarter 2014 financial results before the market bell on Jul 23, 2014. The company posted a positive earnings surprise of 7.44% in the preceding quarter. Northrop currently has a Zacks Rank #2 (Buy). Let’s see how things are shaping up prior to this announcement.

Growth Factors this Quarter

Big defense spenders across the globe are trying to curtail their defense budgets, which could impact the prospects of large defense companies. However, Northrop’s diverse product offering enables it to win consistent contracts from the U.S. Department of Defense (DoD) and allied countries.

Northrop is taking several initiatives to align its products as per the need of its customers. The company is presently working to establish Aerospace Design Centers of Excellence. For 2014, Northrop plans to invest $600 million to further develop these centers. The advanced products developed from these units will help Northrop to win new business.

Northrop exited the second quarter with a multi-year contract worth $3.6 billion from the U.S. Navy to supply 25 E-2D Advanced Hawkeye aircraft.
In addition, Northrop Grumman is trying to counter the sequestration wave in the U.S. with  foreign military sales (FMS). With rising geopolitical tension in Eastern Europe, the Middle East and other Asian countries, FMS sales will increasingly comprise a larger percentage of total revenues. For 2014, FMS is expected to contribute 13% of Northrop’s total revenues.

Earnings Whispers

Our proven model conclusively shows that Northrop Grumman is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is the case here.

Positive ESP:  This is because the Most Accurate estimate stands at $2.23 while the Zacks Consensus Estimate is $2.20 per share, resulting in +1.36% ESP.

Zacks Rank #2: Northrop’s Zacks Rank #2 combined with a +1.36% ESP indicates that the company is going to beat the earnings forecast this quarter.

Other Stocks to Consider

Here are some other companies in the aerospace and defense space having the right combination of elements to post an earnings beat this quarter.

Embraer SA (ERJ - Free Report) has an earnings ESP of +9.52% and carries a Zacks Rank #2 (Buy).

The Boeing Company (BA - Free Report) has an earnings ESP of +1.00% and carries a Zacks Rank #3 (Hold).

General Dynamics (GD - Free Report) has an earnings ESP of +1.14% and carries a Zacks Rank #3 (Hold).

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