General Dynamics' (GD) Q1 Earnings: Is A Beat In The Offing?

General Dynamics Corporation (NYSE:GD) is scheduled to release first-quarter 2018 results on Apr 25, before the opening bell.

We expect inflow of military contracts from the Pentagon and product launches to continue boosting the military shipbuilder’s revenues in the quarter to be reported. Solid cash flow is also expected to get reflected in the upcoming results.

Let’s take a detailed look at the factors influencing General Dynamics’ quarterly results.

Dividend Hike: A Boon

General Dynamics’ strong cash generating capability provides the company with financial flexibility, which in turn allows it to hike dividend significantly and repurchase shares. This, in turn, makes the stock a valuable pick for investors. Notably, its cash and cash equivalents were $2,983 million at 2017-end compared with $2,334 million at 2016-end. Moreover, its cash flow from operating activities was $3,879 million in 2017 compared with $2,198 million in 2016.

Last month, the company increased its quarterly dividend by 10.7%. Impressively, the latest hike marked the 21st consecutive annual dividend hike.

The raised dividend indicates General Dynamics’ optimism on solid cash inflow, which we believe will get reflected in its yet-to-be reported results.

New Products & Orders to Boost Sales

Order flow form Pentagon as well as foreign allies of the United States generally boost quarterly sales of defense bellwethers, and General Dynamics is no exception. Notably, the company’s business division, Electric Boat, clinched a modification contract worth $696.2 million for supplying long lead time materials for the construction of fiscal 2019 and fiscal 2020 Virginia-class submarines.

Moreover, in February, the company unveiled its newest aircrafts — Gulfstream G500 and Gulfstream G600 — at the Singapore Airshow. Such innovations are expected to provide impetus to Gulfstream business’ revenues, which we believe will get reflected in the upcoming quarterly results. In sync with this, the Zacks Consensus Estimate for the company’s first-quarter sales is pegged at $7.5 billion, reflecting 1.4% year-over-year growth.

Other Factors at Play

In the first quarter, General Dynamics offered to buy CSRA — an information technology provider — for $9.6 billion, including $2.8 billion of debt. However, CACI International proposed $7.2 billion in cash for the takeover. Interestingly, General Dynamics revised its acquisition deal with CSRA on Mar 20, 2018. Per the agreement, General Dynamics agreed to acquire all of CSRA’S outstanding shares for $41.25 per share in cash, reflecting an increase of 50 cents from the previous proposal.

The Zacks Consensus Estimate for General Dynamics’ first-quarter earnings is pegged at $2.47 per share, reflecting 0.4% annual decline. This might have been caused by higher R&D expenses that management expects the company to incur across 2018.

What the Zacks Model Unveils

Our proven model shows that General Dynamics is likely to beat estimates this quarter. This 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.

Zacks ESP: General Dynamics has an Earnings ESP of +0.18%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Dynamics carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conversely, 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.

Stocks That Warrant a Look

Here are a few other 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:

Rockwell Collins (NYSE:COL) is expected to report second-quarter fiscal 2018 results on Apr 27. The company has an Earnings ESP of +0.19% and a Zacks Rank #2.

Boeing (NYSE:BA) ) is expected to report first-quarter 2018 results on Apr 25. The company has an Earnings ESP of +1.70% and a Zacks Rank of #2.

L3 Technologies (NYSE:LLL) is expected to report first-quarter 2018 results on May 1. The company has an Earnings ESP of +2.51% and a Zacks Rank #3.

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