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Will Cost Synergies Bolster L3Harris' (LHX) Q4 Earnings?

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L3Harris Technologies, Inc. (LHX - Free Report) is scheduled to release fourth-quarter and full-year 2019 results on Feb 4, before the opening bell.

The company delivered a positive earnings surprise of 7.95% in the last reported quarter.

Let’s take a detailed look at some factors that may have influenced the company’s performance in the fourth quarter.

Factors at Play

Post the formation of L3Harris Technologies, through the merger of L3 Technologies and Harris Corp, this will be the second quarterly results for the combined company. Positive synergies from the combination of these two industry stalwarts are expected to have significantly boosted L3Harris’ operational results in the fourth quarter.   

In October, L3Harris begun initial deliveries of its new Enhanced Night Vision Goggle Binocular (ENVG-B), as part of an order won in 2018. The company delivered 40 units initially and is expected to have completed the order by early 2020. So, we believe that during the fourth quarter, the company may have delivered quite a few night vision goggles.  Such deliveries are expected to have translated into revenue recognition for L3Harris in the soon-to-be-reported quarter.

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc Price and EPS Surprise

L3Harris Technologies Inc price-eps-surprise | L3Harris Technologies Inc Quote

Further, the current U.S. government’s stance of favoring abundant spending on defense majors through contract awards is expected to have contributed to the company’s quarterly top line.   

The Zacks Consensus Estimate for L3Harris’ fourth-quarter revenues is pegged at $4.81 billion, indicating a massive 188.7% surge from the year-ago quarter reported figure.

Following the merger in June 2019, L3Harris is expected to have achieved after-tax cost synergies of $50 million in the remainder of the year. Notably, on the third-quarter earnings call, the company announced that it targets to achieve gross savings of $80 million and gross run rate savings of $200 million by the end of 2019. Part of these savings may have been achieved in the fourth quarter.  

Solid revenue growth expectations and aforementioned integration-related savings are projected to have bolstered L3Harris’ fourth-quarter earnings.
The Zacks Consensus Estimate for L3Harris’ fourth-quarter earnings of $2.75 per share indicates growth of 40.3% from the year-ago quarter reported figure.

Earnings Whisper

Our proven model does not conclusively predict an earnings beat for L3Harris this time around. 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. But that’s not the case here.

L3Harris has an Earnings ESP of -3.64% and a Zacks Rank #2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

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

Heico Corporation HEI is expected to release fourth-quarter 2019 results soon. The company has an Earnings ESP of +8.94% and a Zacks Rank #1.

Aerojet Rocketdyne Holdings AJRD is expected to release fourth-quarter 2019 results soon. The company has an Earnings ESP of +2.17% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

TransDigm Group Incorporated TDG is set to release fourth-quarter 2019 results on Feb 4. The company has an Earnings ESP of +0.51% and a Zacks Rank #3.

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