The third-quarter 2022 earnings cycle has started for aerospace and defense stocks, with Lockheed Martin reporting better-than-expected earnings. Some major industry players like Boeing (BA Quick QuoteBA - Free Report) , General Dynamics (GD Quick QuoteGD - Free Report) and Teledyne Technologies (TDY Quick QuoteTDY - Free Report) are set to reveal their Q3 numbers tomorrow.

Factors that Influenced Aerospace & Defense Stocks

Growing global air travel demand, driven by a steady recovery in the domestic space as well as improving trends observed in international air travel, is expected to significantly boost the Q3 results of aerospace and defense stocks, particularly those engaged in commercial aviation. Evidently, Boeing witnessed a solid year-over-year surge of 31.8% in its commercial shipments during the third quarter. With Boeing being the largest jet maker in the nation, we expect the Q3 results of the remaining aerospace majors to reflect a similar improvement in delivery trends. Such solid deliveries must have boosted the overall top-line growth of the Aerospace sector, which houses all aerospace and defense stocks.

Stocks in this industry that are more focused on combat must have gained as a result of steady government support. Moreover, a steady order flow observed in the past couple of quarters, along with improving delivery trends in recent times, buoyed by recovering economic trends are projected to have bolstered Q3 revenues of aerospace and defense stocks.

However, persistent headwinds like supply chain disruption along with some unfavorable project timing as the result of coronavirus might have an adverse impact on the Q3 bottom line of the industry.

Q3 Projections

Aerospace sector Q3 earnings are expected to slip 0.7% from the prior-year quarter’s reported figure, while revenues are projected to improve 8.2%.  

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Aerospace & Defense Stocks to Watch

Let's take a look at three defense companies that are scheduled to report third-quarter 2022 earnings on Oct 26 and find out how things have shaped up prior to the announcements.

Boeing’s third-quarter deliveries reflected a solid 31.8% surge in commercial shipments from the year-ago reported figure, while defense deliveries declined 2.7%. Such mixed delivery numbers from manufacturing companies like Boeing are likely to contribute moderately to the jet maker’s overall third-quarter results.

Strong cargo markets with several Boeing-converted freighter and materials management agreements must have added an impetus to the company’s Q3 revenues. However, the discontinuation of an engine distribution agreement since the second quarter might have impacted BA’s government service revenue profile, thereby partly hampering its overall performance in Q3 (read more: Rise in Aftermarket Service to Aid Boeing in Q3 Earnings?).

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.

Boeing currently has an Earnings ESP of -1,900% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 

General Dynamics’ Q3 results are expected to reflect the solid performance of most of its segments. While increased air travel demand is projected to have boosted Aerospace unit’s performance, increased demand volume for shipbuilding is expected to have benefited the Marine Systems segment. Increased revenues from U.S. Stryker wheeled combat vehicles are anticipated to have benefited the Combat Systems unit, while strong order activity might have boosted the performance of the Technologies segment.

However, the shortage of chips may have continued to plague the company’s ability to deliver certain products in the third quarter as well, thereby partly impacting overall results.

General Dynamics has an Earnings ESP of -0.41% and a Zacks Rank #3 (read more: Will Segment Sales Aid General Dynamics Q3 Earnings?).

Teledyne’s Q3 results are likely to reflect solid segmental performance from the majority of its business units. While higher sales of electronic tests and measurement instrumentation, marine instrumentation and environmental instrumentation are projected to have boosted the top line of the Instrumentation segment, the FLIR acquisition along with strong sales growth of the industrial and scientific sensors, cameras and X-ray products must have bolstered the Digital Imaging unit’s revenues. Also, higher sales of energy systems amid lower sales of engineered products must have benefited Engineered Systems’ performance.

Nevertheless, the dual impact of inflation as well as supply-chain constraints might have adversely impacted TDY’s soon-to-be-reported quarterly earnings.
Teledyne currently has an Earnings ESP of -1.20% and a Zacks Rank #3 (read more: Will Strong Sales Momentum Boost Teledyne's Q3 Earnings?)

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