Can Healthy Top-Line Growth Buoy Harris (HRS) Q2 Earnings?

Harris Corporation (NYSE:HRS) is scheduled to report second-quarter fiscal 2019 results before the opening bell on Jan 29. In the last reported quarter, the company beat estimates by 8 cents. It pulled off a trailing four-quarter average positive earnings surprise of 7.1%.

The company is likely to report higher revenues in the fiscal second quarter backed by healthy growth dynamics. Whether this could result in an earnings beat remains to be seen.

Top-Line Expansion

During the quarter, Harris inked a deal to merge with L3 Technologies in an all stock merger of equals transaction, in a bid to create a global defense technology leader. The deal is anticipated to close in mid-calendar year 2019, subject to customary closing conditions. Notably, L3 Technologies is a leading provider of global intelligence, surveillance and reconnaissance, communications and electronic systems for military, homeland security and commercial aviation customers. Per the agreement, L3 shareholders will receive a fixed exchange ratio of 1.30 shares of Harris common stock for each share of L3, consistent with the 60-trading day average exchange ratio of the two companies. After completion of the deal, Harris and L3 shareholders will own approximately 54% and 46%, respectively, of the combined company — L3 Harris Technologies, Inc. Reportedly, the combined entity will be the sixth largest defense company in the United States and a top 10 defense company globally, with approximately 48,000 employees and customers in more than 100 countries. The deal will enable Harris to increase scale, strengthen core businesses and fortify position as a premier global defense technology company.

Harris continues to be a leading technology innovator, solving customers’ toughest mission-critical challenges by providing innovative solutions. Its cutting-edge achievement will likely push scientific frontiers and enable new discoveries in space. The company supports government and commercial customers in more than 100 countries.

In addition, Harris’ avionics systems have been an integral part of several fighter jets of the U.S. Defense, being extremely light-weight, smarter, more effective and affordable. The company is actively involved in research and development of next-generation mission computing and secure airborne communications technologies to ensure state-of-the-art products for the aviators. At the same time, Harris has been a mission partner for the U.S. Air Force for more than seven decades.

With continued order momentum reflecting strength in DoD Tactical and Avionics, Harris expects healthy top-line growth. For the fiscal second quarter, the Zacks Consensus Estimate for total revenues is pegged at $1,637 million, up from $1,535 million reported in the year-earlier quarter. Adjusted earnings per share stand at $1.91, up from $1.67 reported a year ago.

Earnings Whispers

Despite top-line growth expectations, our proven model does not conclusively show that Harris is likely to beat earnings this quarter as it does not possess the key components. 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. This is not the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and Zacks Consensus Estimate, is 0.00% with both pegged at $1.91. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Harris has a Zacks Rank #3. Although this increases the predictive power of our model, we need to have a positive ESP to make us reasonably confident of an earnings beat.

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

Stocks to Consider

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

Sprint Corporation (NYSE:S) is slated to release quarterly numbers on Jan 31. It has an Earnings ESP of +13.33% and a Zacks Rank #2.

Motorola Solutions, Inc. (NYSE:MSI) is scheduled to release results on Feb 7. The company has an Earnings ESP of +1.73% and has a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Arista Networks, Inc. (NYSE:ANET) is +2.72% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 14.

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