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Rockwell Collins (COL) Up 15% Since Earnings Report: Can It Continue?

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About a month has gone by since the last earnings report for Rockwell Collins, Inc. (COL - Free Report) . Shares have added about 15% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Rockwell Collins Tops on Q3 Earnings, Updates ’17 View

Rockwell Collins reported financial results for third-quarter fiscal 2017 (ended Jun 30, 2017). The company’s adjusted earnings per share of $1.64 surpassed the Zacks Consensus Estimate of $1.58 by 3.8%. Reported earnings also grew 0.6% from $1.63 per share a year ago.

Revenues

In the reported quarter, Rockwell Collins’ total sales was $2,094 million, beating the Zacks Consensus Estimate of $2,026 million by 3.4%. Revenues also grew 57% year over year driven by higher sales at Interior Systems, Commercial Systems, Government Systems and Information Management Services.

Operational Highlights

Total segment operating income during the quarter was $386 million, up 36.9% from $282 million in the year-ago quarter.

Rockwell Collins’ total research and development investment (including the increase in pre-production engineering costs) was $303 million, up 24.2%. The figure represented 14.5% of total quarterly sales compared with 18.3% in the year-ago period.

Interest expense during the quarter was $77 million compared with $16 million in the year-ago quarter.

Segment Performance

Commercial Systems: In the quarter under review, segmental sales of $658 million were up 7.5% year over year primarily owing to higher original equipment and aftermarket sales.

Operating earnings for the quarter were $144 million compared with $141 in the year-ago quarter. However, operating margin contracted 110 bps to 21.9%.

Government Systems: The segment reported sales of $558 million, up 0.5% on the back of higher communication and navigation revenues.

Operating earnings for the quarter were $123 million, up 7% from $115 million in the year-ago period. Operating margin also expanded 130 bps to 22%, primarily driven by higher sales volume and favorable sales mix.

Information Management Services: Segment sales were $183 million, up from $167 million in the year-ago period backed by growth in aviation related revenues.

Operating earnings for the quarter were $39 million, up from $26 million in the year-ago period. Operating margin was also 21.3% compared with 15.6% a year ago. The increase was primarily owing to higher sales volume.

Financial Condition

As of Jun 30, Rockwell Collins’ cash and cash equivalents were $578 million compared with $340 million as of Sep 30, 2016.

Long-term debt (net) was $7,268 million as of Jun 30 up from $1,374 million as of Sep 30, 2016.

Cash used for operating activities in the first nine months of fiscal 2017 was $416 million, compared with $223 million a year ago.

Fiscal 2017 Guidance

Adjusted earnings per share are still expected in the range of $5.95–$6.15.

The company expects its fiscal 2017 revenue to be about $6.8 billion compared with its prior guidance in the range of $6.7–$6.8 billion.

Total segment operating margin is reaffirmed to be in the band of 19%–20%.

The company still expects free cash flow in the range of $650−$750 million. Its R&D expenditure guidance is projected to be about $1.1 billion compared with the prior $1.05−$1.15 billion band.

The full-year tax rate is reiterated to be in the range of 27%–28%.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in  fresh estimates. There have been two revisions higher for the current quarter compared to four lower.

Rockwell Collins, Inc. Price and Consensus

VGM Scores

At this time, Rockwell Collins' stock has a poor Growth Score of F, however its Momentum is doing a lot better with an A. The stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for momentum investors based on our style scores.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions indicates an upward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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