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Defense Stocks to Watch for Earnings on Aug 3: LHX, LDOS & More

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So far, of the defense companies that have released second-quarter results, majority reported  better-than-expected earnings. Another of cohort of major defense contractors is set to reveal their earnings this week.

Factors That Influenced Defense Players in Q2

Expansionary budgetary amendment for defense has always acted as a major catalyst for defense stocks’ gains and this time was no exception. Notably, U.S. President Biden submitted his first budget request in detail to Congress on May 28, which included an investment option worth $715 billion for the Department of Defense (DoD). This marked a 1.6% increase from the prior year’s enacted amount of $703.7 billion.

Such enhanced budgetary provisions thereby raised the chance of increased order inflows for major defense primes from Pentagon and U.S. allies. This in turn must have boosted backlog of the defense contractors, which we expect to witness once all the major defense players reveal their Q2 numbers.

However, factors like supply chain disruption across the board, courtesy of the lingering pandemic impacts, along with dearth of ample cash flow within the industry compared to pre-COVID era might get reflected in the Q2 results of some of the companies.

On a brighter note, as far as the commercial aerospace market of the Aerospace sector, which houses defense stocks, is concerned, it has been witnessing a gradual recovery in global air traffic lately. This in turn brought relief for U.S. jet giant, Boeing (BA - Free Report) with the company witnessing a massive 268% improvement in Q2 revenues for commercial airplane segment. We expect Q2 results from the remaining defense stocks, with strong presence in commercial aerospace market, to reflect similar improved trends.

Considering the aforementioned factors, we remain a bit skeptical about the overall performance of aerospace stocks in this time around.

Q2 Projections

Aerospace sector Q2 earnings are expected to improve 197% year over year on 12.6% revenue growth.

For more details on quarterly releases, you can go through the latest Earnings Preview.

Defense Earnings to Watch on Aug 3

L3Harris Technologies’ (LHX - Free Report) majority of segments are expected to reflect revenue growth in second quarter, with solid sales of F-35 jets, consistent modernization demand for DoD tactical and integrated vision systems and ramped up production of manned platforms, being the primary growth catalysts.

Moreover, cost synergies, primarily attributable to supply chain and facilities consolidation as a result of the merger between legacy L3 Technologies and Harris Corp, are expected to have boosted L3Harris’ second-quarter operating margin, thereby contributing favorably to the bottom-line figure (read more: L3Harris to Report Q2 Earnings: What's in the Cards?).

According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

L3Harris has an Earnings ESP of +0.43% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc price-eps-surprise | L3Harris Technologies Inc Quote

 

Leidos Holdings (LDOS - Free Report) delivered an autonomous vessel to the U.S. Navy, known as Seahawk, during the second quarter. Revenues earned from such deliveries, along with positive synergies from acquisitions made in the past few quarters, are likely to have boosted the company’s second-quarter top-line performance.

We expect the company to have witnessed high staff utilization, increased cost efficiencies on certain programs, reduced indirect costs and strong program execution across its entire business during the second quarter. This, in turn, must have contributed favorably to its quarterly earnings performance.

Leidos Holdings currently has an Earnings ESP of +4.46% and Zacks Rank #2 (read more: What's in the Cards for Leidos Holdings' Q2 Earnings?).

Leidos Holdings, Inc. Price and EPS Surprise

Leidos Holdings, Inc. Price and EPS Surprise

Leidos Holdings, Inc. price-eps-surprise | Leidos Holdings, Inc. Quote

TransDigm Group’s (TDG - Free Report) upcoming fiscal third-quarter 2021 results are expected to reflect improved commercial aftermarket revenues. This must have been driven by improving trends observed in commercial aerospace industry, buoyed by ramped-up distribution of the COVID-19 vaccine and increasing air traffic.

Moreover, the company’s cost management initiatives, along with positive synergies from the Cobham Aero Connectivity business’ acquisition, are expected to have boosted its quarterly earnings performance.

TransDigm currently has an Earnings ESP of -0.73% and a Zacks Rank #3 (read more: What's in the Cards for TransDigm Group in Q3 Earnings?).

 

CurtissWright Corporation (CW - Free Report) delivered an earnings surprise of 16.15% in the last reported quarter. Moreover, it surpassed the Zacks Consensus Estimate in the trailing four quarters, delivering an earnings surprise of 10.19%, on average.

The company currently has an Earnings ESP of 0.00% and Zacks Rank #3.

CurtissWright Corporation Price and EPS Surprise

CurtissWright Corporation Price and EPS Surprise

CurtissWright Corporation price-eps-surprise | CurtissWright Corporation Quote