Defense Stocks To Watch For Earnings On Aug 10: OA, CAE

The Q2 earnings cycle is nearing its end. As of Aug 5, 87.7% of the market cap of the S&P 500 index have released their quarterly numbers. Reported results reveal a 4.1% decline in second-quarter earnings due to a 0.9% dip in revenues.

Coming to the defense sector, we have seen Q2 results from 95.6% of the sector’s total market cap, as of Aug 5. Reported results reveal a 28.8% decline in second-quarter earnings though revenues grew a paltry 2.7%. The trend is already clear, but we would have a more complete picture by the end of this week. For more details, you may go through our Earnings Trends report.

Among the defense majors, Huntington Ingalls Industries (NYSE:HII) , the nation’s largest military shipbuilder, reported mixed second-quarter results last week.

We are gearing up for the final batch of reports through this week.

Thanks to mixed performances, we now expect the sector to log an earnings decline of 27.4% regardless of a minor 1.5% revenue growth.

Let’s take a look at a couple of defense stocks that are scheduled to report their quarterly numbers on Aug 10.

Orbital ATK Inc. (NYSE:OA) is set to release second-quarter 2016 results tomorrow, before the opening bell. The company designs, builds and delivers space, defense and aviation-related systems.

Orbital ATK is a Zacks Rank #3 (Hold) stock with an Earnings ESP of +3.85%. Last quarter, the company's earnings were on par with estimates, bringing the trailing four-quarter average to a positive 20.88%.

For the first six months of 2016, the company expects nearly $5 billion in new orders and option exercises, of which about $3.9 billion was already received in the first four months of the year. All three of its business segments have a robust outlook for the second quarter as well as the second half of the year.

Orbital ATK exited the first quarter with a total backlog of $14.8 billion, out of which firm backlog accounted for $8.6 billion. The current backlog provides solid visibility on top-line growth for the to-be-reported quarter and the rest of the year.

In addition, Orbital ATK’s rigorous cost-saving initiatives will continue to boost margins in the second quarter of 2016 (read more: Orbital ATK Q2 Earnings: Stock Likely to Beat Estimates).

For the second quarter, the Zacks Consensus Estimate for earnings is $1.30 a share, reflecting a 1.72% year-over-year increase, while consensus revenues are pegged at $1.14 billion, implying 0.90% year-over-year growth.

CAE Inc. (TO:CAE) is a leading provider of simulation and modelling technologies, and integrated training services to the civil aviation industry and defense forces around the globe.

The company will release its first quarter of fiscal 2017 (ending Jun 30, 2016) results on Aug 10 after market close.

The company is a Zacks Rank #4 (Sell) stock with an Earnings ESP of 0.00%. In the preceding quarter, the company delivered a positive earnings surprise of 11.11%, bringing the trailing four-quarter average to a positive 6.01%.

Not only does the company’s 0.00% ESP make surprise prediction difficult but also we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

During the fourth-quarter fiscal 2016 earnings call, CAE projected that its revenue and operating income will likely register growth in all segments in fiscal 2017, led primarily by Civil, which is expected to have higher annual utilization of its training network and low double-digit percentage operating income growth.

However, the company expects modest growth in Defense and double-digit percentage growth in Healthcare.

For the fiscal first quarter, the Zacks Consensus Estimate for earnings is 16 cents a share, reflecting a 2.08% year-over-year decline, while consensus revenues are pegged at $477.3 million, implying 5.4% year-over-year growth.