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Defense Stocks' Q4 Earnings Lineup for Jan 29: BA, GD, TXT

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Teledyne Technologies (TDY - Free Report) started Q4 earnings for the defense space on Jan 22 on an encouraging note. The company beat estimates on both counts. A number of major defense contractors are expected to release their financial numbers this week.

Factors Likely to Aid Q4 Results

Defense stocks have been on a growth trajectory over the past couple of years and continued to witness a solid flow of contracts through 2019. Apart from increased global tensions that bolstered demand for U.S. military equipment worldwide, thereby aiding the largest weapons supplying nation, America’s own cross border tiff with North Korea and Iran also boosted defense firms. These developments along with increased fiscal defense budgetary provision are expected to have led to major defense contractors’ growth in the fourth quarter.

However, we remain a bit skeptical about the broader Aerospace sector, which constitutes defense stocks. This is because commercial aerospace that forms a major portion of the sector has been going through a rough patch, thanks to Boeing’s (BA - Free Report) dismal performance. In particular, Boeing’s 737 product line, grounded since last March and currently facing temporary production suspension, has dealt a big blow to the U.S. commercial jet space.

Q4 Projections

Aerospace sector Q4 earnings are expected to decline 19.7% year over year while revenues are projected to show no change.  

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

Defense Stocks to Watch

Let's take a look at some defense stocks that are scheduled to report fourth-quarter 2019 earnings on Jan 29 and find out how things have shaped up prior to the announcements.

The Boeing Company (BA - Free Report) delivered a negative earnings surprise of 28.92% in the last reported quarter. However, the company outperformed the Zacks Consensus Estimate in the trailing four quarters, the average being 12.94%.

Boeing’s fourth-quarter commercial deliveries reflected a 66.8% year-over-year plunge, while its defense deliveries increased a solid 78% in the soon-to-be-reported quarter. The mixed delivery figures do not raise hopes for an optimistic operational performance this time around as the aircraft giant’s defense business contributes much less than its commercial unit to its total revenues.

Moreover, lower delivery payments due to fewer 737 deliveries combined with costs for building and storing 737 aircraft are expected to have weighed on Boeing’s operating cash in the to-be-reported quarter. On a bright note, Boeing Global Service (BGS) segment is expected to have witnessed revenue growth.

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 has an Earnings ESP of -7.83% and a Zacks Rank #3, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter (read more: Will Global Services Unit Aid Boeing's Q4 Earnings?).

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise

The Boeing Company price-eps-surprise | The Boeing Company Quote

General Dynamics Corp. (GD - Free Report) reported a positive earnings surprise of 2.61% in the last reported quarter. The company outperformed the Zacks Consensus Estimate in the trailing four quarters, the average beat being 4.14%.

General Dynamics’ Aerospace segment revenues are likely to have witnessed a solid boost in the fourth quarter, owing to increased G500 aircraft deliveries.

The company witnesses a steady flow of orders from both Pentagon and its foreign allies, courtesy of the huge demand for its enhanced military shipbuilding capabilities. Taking this into account, we expect the upcoming results to reflect a solid backlog for this defense contractor.

Further, a favorable margin performance and launch of aircraft might have acted as key catalysts for the company’s bottom line.

General Dynamics has an Earnings ESP of +1.49% and a Zacks Rank #3 (read more: Will Aerospace Unit Drive General Dynamics' Q4 Earnings?).

Textron Inc. (TXT - Free Report) delivered a positive earnings surprise of 11.76% in the last reported quarter. The company outperformed the Zacks Consensus Estimate in the trailing four quarters, the average beat being 11.77%.

Higher commercial volumes are expected to have boosted the company’s top line in the fourth quarter of 2019.

During the soon-to-be-reported quarter, Textron Aviation made significant investments in expanding global part distribution capabilities across warehouses at three facility locations in the United States, with a combined footprint of more than 8,000 square feet. Such investments may have shot up expenses, thereby dragging down its bottom line.

Textron has Earnings ESP of +1.85% and a Zacks Rank #3 (read more: Textron to Report Q4 Earnings: What's in the Cards?).

Textron Inc. Price and EPS Surprise

Textron Inc. Price and EPS Surprise

Textron Inc. price-eps-surprise | Textron Inc. Quote

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