General Dynamics (GD) Q3 Earnings: Will It Beat Again?

Defense behemoth General Dynamics Corp. (NYSE:GD) is set to release third-quarter 2016 results before the opening bell on Oct 26.

In the preceding quarter, General Dynamics posted a positive earnings surprise of 6.09%. It is worth noting that the company has outperformed the Zacks Consensus Estimate in the trailing four quarters, the average being 6.54%.

Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that General Dynamics is likely to beat earnings because it has the right combination of two key ingredients.

Zacks ESP: General Dynamics has an Earnings ESP of +0.84%. That is because the Most Accurate estimate is $2.39 while the Zacks Consensus Estimate is pegged lower at $2.37. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: General Dynamics has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2(Buy) or 3 have a significantly higher chance of beating earnings estimates.

Also, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of General Dynamics' Zacks Rank #3 and +0.84% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than Expected Earnings?

General Dynamics earns through a broad portfolio of products and services that helps it to maintain its growth momentum. With the FY17 budget proposal calling for $582.7 billion in funding for the Pentagon, including $8.1 billion for submarines, General Dynamics stands to benefit immensely as it is one of the only two contractors equipped to build nuclear-powered submarines in the world.

Among the notable highlights of the third quarter, General Dynamics clinched twin contracts from the U.S. Navy, worth a total $729.6 million, in relation to rendering engineering, technical and repairing services for nuclear-powered submarines. The company also gained a contract worth $511 million from Matson, Inc. for the production of 2 Kanaloa Class containerships and another five-year contract worth $430 million from the U.S. Census Bureau to support the 2020 Census Questionnaire Assistance (CQA) program.

Further, in the company’s earlier announcement, management expressed its confidence to witness optimistic sales activity and order level for General Dynamics during the third quarter.

Although the company did not issue any guidance for the third quarter, it expects the quarter to be weaker than the preceding one. Moreover, management expects the company’s Aerospace business division to face margin pressure in the third quarter.

Overall, for the third quarter, the Zacks Consensus Estimate for earnings is $2.37 a share, reflecting an increase of 3.82% year over year, while the consensus mark for revenues is pegged at $7.95 billion, implying a 1.12% year-over-year decline.

Stocks to Consider

Here are a few stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

L-3 Communications Holdings Inc. (NYSE:LLL) has an earnings ESP of +2.75% and a Zacks Rank #3. The company is scheduled to report quarterly results on Oct 27.

Huntington Ingalls Industries, Inc. (NYSE:HII) , slated to report on Nov 3, has an earnings ESP of +2.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Boeing Company (NYSE:BA) has an earnings ESP of +0.38% and a Zacks Rank #3. The company is scheduled to release results on Oct 26.

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