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Defense Stocks' Q2 Earnings Roster for Aug 2: HII, TDY & More

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Last week, the Wall Street saw Q2 earnings releases from the majority of the defense biggies like aerospace giant Boeing (BA - Free Report) , missile maker Raytheon (RTN - Free Report) as well as the Pentagon’s largest defense contractor Lockheed Martin (LMT - Free Report) to name a few. Notably, most of these corporations came up with an earnings beat.

With results from 66.2% or 265 of the S&P 500 members already out, as of Jul 27, we have crossed the halfway mark in the Q2 earnings season. Reported earnings for these index members increased 23.6% year over year on 10.1% higher revenues. Among them, 80.8% surpassed EPS estimates while 72.1% exceeded revenue estimates.

For the remaining 235 companies, combined with the already reported 265 index members, earnings are estimated to improve 23.6% on 8.8% higher revenues in Q2, with double-digit bottom-line growth expected for 12 of the 16 Zacks sectors. These projections indicate that Q2 earnings growth will exceed the Q1 level, as the remainder of this earnings season unfolds.

In fact, the current week is also going to be a busy one with nearly 1000 companies scheduled to report Q2 results, including 139 S&P 500 members. Now, let us focus on the defense space as it is expected to see quite a few of the major defense contractors coming up with their quarterly numbers this reporting cycle.

Notably, for the Zacks Aerospace sector, which constitutes defense stocks, total Q2 earnings are expected to increase 23.5% year over year on 7.5% higher revenues, as of Jul 27.  For more details on quarterly releases, you can go through the latest Earnings Preview.

Defense stocks, which have been on a growth trajectory for past couple of quarters, courtesy of President Trump’s favored stance toward increased spending on the nation’s defense, saw a bumpy Q2. While suspension of the Iran deal fueling chances of civil war in Syria bolstered defense stocks, the denuclearization agreement signed by North Korea hinting at a peace regime across the Korean peninsula checked the rally. Nevertheless, a steady flow of contracts from the Pentagon continues to provide impetus to the stocks. Defense contractors also received a string of key contracts from foreign allies of the United States, hinting at growing international market for weaponries.

Now let’s take a look at four defense companies — Huntington Ingalls Industries, Inc. (HII - Free Report) , Teledyne Technologies Inc. (TDY - Free Report) , Esterline Technologies Corp. (ESL - Free Report) and Kratos Defense & Security Solutions, Inc. (KTOS - Free Report) — all of which are scheduled to release Q2 results before the opening bell on Aug 2.

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has good chance of beating estimates if it also has a positive Earnings ESP. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls came up with a negative earnings surprise of 14.50% in the last reported quarter. However, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 8.04%.

In fact, a steady inflow of orders from the Pentagon has always provided an impetus to Huntington Ingalls’ results. Keeping this trend alive, the company won a string of contracts this earnings season.

Such order growth tends to significantly boost revenues of major defense contractors like Huntington Ingalls. In sync with this, the Zacks Consensus Estimate for the company’s second-quarter revenues stands at $1.90 billion, implying a 2.4% year-over-year increase.

However, Huntington Ingalls does not constitute that right combination of elements to post an earnings beat. The company has an Earnings ESP of -2.56% 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.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions (read more: Will Order Growth Aid Huntington Ingalls Q2 Earnings?).

Teledyne Technologies pulled off a positive earnings surprise of 16.77% in the last reported quarter. The company also outperformed the Zacks Consensus Estimate in the trailing four quarters, with an average beat of 22.55%.

Nevertheless, the chances of Teledyne beating the Zacks Consensus Estimate in Q2 are dim,even though it carries a Zacks Rank #3. This is because the company has an Earnings ESP of 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.90.

Esterline Technologies delivered a positive earnings surprise of 9.59% in the last reported quarter. Also, it surpassed the Zacks Consensus Estimate in two of the past four quarters, with an average positive earnings surprise of 1.16%.

The company has an Earnings ESP of +0.59%, which increases the probability of earnings beat. However, it has a Zacks Rank of 4, which makes surprise prediction difficult.

Kratos Defense Security & Solutions posted earnings of 5 cents per share in the last reported quarter against the Zacks Consensus Estimate of break-even earnings. In fact, it outpaced the Zacks Consensus Estimate in one of the trailing four quarters, with an average positive earnings surprise of 9.52%.

Our proven model does not conclusively show that Kratos Defense Securityis likely to beat earnings estimates this quarter, despite its Zacks Rank #3. This is because the company has an Earnings ESP of 0.00%.

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