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L-3 Communications (LLL) Q2 Earnings: What's in Store?

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L-3 Communications Holdings Inc. (LLL - Free Report) is set to release second-quarter 2016 results before the opening bell on Jul 28. Last quarter, the company delivered a positive earnings surprise of 32.48%. Let’s see how things are shaping up prior to this announcement.

L-3 COMM HLDGS Price and EPS Surprise

L-3 COMM HLDGS Price and EPS Surprise | L-3 COMM HLDGS Quote

Factors to Consider this Quarter

L-3 Communications is working on transforming its business portfolio to focus on the defense electronics, communications, and intelligence, surveillance and reconnaissance markets where it has a leading position.

During the first-quarter earnings call, the company said that earnings for the quarter had reflected market share gains in core areas, which will drive substantial growth through 2016. Keeping with this, management raised its adjusted earnings per share guidance to the range of $7.55 to $7.75 from the prior projection of $7.40–$7.60.

Among the highlights of the second quarter, L-3 Communications has bagged a number of contracts. The company received a major contract, worth $1.9 billion, from the U.S. Air Force to supply airframes for the next-generation air refueling tankers. The company also received a contract valued at $302.2 million from the Navy for logistics services for the C-12 utility lift aircraft.

However, the company believes that the final surplus of the Afghanistan drawdown sales would dent its revenues by about $135 million in 2016, excluding which, sales to the U.S. government and DoD markets would have been more or less flat.

Earnings Whispers

Our proven model does not conclusively show that L-3 Communications is likely to beat estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -1.19%. This is because the Most Accurate estimate stands at $1.66, while the Zacks Consensus Estimate is pegged slightly higher at $1.68.

Zacks Rank: Though L-3 Communications’ Zacks Rank #3 increases the predictive power of ESP, we need a positive ESP to be confident about an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

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

General Dynamics Corporation (GD - Free Report) has an Earnings ESP of +2.17% and a Zacks Rank #2. The company will report quarterly results on Jul 27.

Northrop Grumman Corporation (NOC - Free Report) has an Earnings ESP of +4.00% and a Zacks Rank #2. The company is scheduled to report quarterly results on Jul 27.

Raytheon Company (RTN - Free Report) has an Earnings ESP of +8.82% and a Zacks Rank #3. The company is scheduled to report quarterly results on Jul 28.

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