Spirit AeroSystems (SPR) Q2 Earnings: Stock To Surprise?

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is set to release second-quarter 2016 results before the opening bell on Aug 3. In the preceding quarter, Spirit AeroSystems delivered a positive earnings surprise of 21.7%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Growing worldwide demand for commercial airplanes is expected to boost for the sales of large aerostructures and components that are supplied by Spirit AeroSystems. The company has a number of long-term contracts with industry bellwethers like The Boeing Company (NYSE:BA) and Airbus Group (PA:AIR) SE (OTC:EADSY) , which should help keep its revenue stream steady.

Meanwhile, Spirit AeroSystems is quite active in the defense market and is looking to begin production of new models. This should open up new avenues of growth for the company in this space.

Moreover, Spirit AeroSystems has been regularly returning cash to its shareholders in the form of share repurchases since 2014. It has plans to repurchase additional shares this year. Such investor-friendly initiatives will help retain investor interest in the stock.

For 2016, the company expects earnings in the range of $4.15–$4.35 per share on sales of $6.6 billion to $6.7 billion.

For the second quarter, the Zacks Consensus Estimate for earnings reflects a 3.9% year-over-year decline, while sales are anticipated to be down 2% to $1.66 billion.

Earnings Whispers

Our proven model does not conclusively show that Spirit AeroSystems is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, that is not the case here, as you will see below.

Zacks ESP: Spirit AeroSystems has an Earnings ESP 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.05.

Zacks Rank: Spirit AeroSystems’ Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.

We note that Sell-rated stocks (#4 or #5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the Aerospace/Defense industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.

Orbital ATK, Inc. (NYSE:OA) has an Earnings ESP of +3.85% and a Zacks Rank #3. The company is expected to report second-quarter 2016 results on Aug 4.

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