Is Northrop Grumman (NOC) All Set For A Q2 Earnings Beat?

Defense major Northrop Grumman Corp. (NYSE:NOC) is set to release second-quarter 2016 results before the opening bell on Jul 27. In the preceding quarter, the company delivered a positive earnings surprise of 12.15%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

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

Zacks ESP: Northrop Grumman has an Earnings ESP of +4.00%. That is because the Most Accurate estimate is $2.60 while the Zacks Consensus Estimate is pegged lower at $2.50. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: Northrop Grumman has a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.

The combination of Northrop Grumman's Zacks Rank #2 and +4.00% ESP makes us reasonably certain of an earnings beat.

NORTHROP GRUMMN Price and EPS Surprise

NORTHROP GRUMMN Price and EPS Surprise | NORTHROP GRUMMN Quote

What’s Driving the Better-Than Expected Earnings?

Northrop Grumman has a strong presence in the U.S. Air Force, Space and Cyber Security programs. Northrop’s product line is well positioned in high-priority categories, such as, defense electronics, unmanned aircraft and missile defense.

Although there is no second-quarter guidance, the company had earlier projected that 2016 will be another year of strong operating performance. The company will initiate work on some major new development programs, as it transitions from a number of legacy production programs in aerospace and electronic systems to new production programs in aerospace emission systems.

Northrop Grumman’s strong balance sheet and steady cash flow position offer substantial financial flexibility for incremental dividends, ongoing share repurchases and earnings accretive acquisitions.

This is borne out by the company’s dividend hike in the second quarter. The board of directors has approved an increase in the quarterly dividend rate by 10 cents, bringing the annualized payout to $3.60 per share, up 12.5% from $3.20 paid earlier.

For the second quarter, the Zacks Consensus Estimate for earnings is $2.50 a share, reflecting a decrease of 1.43% year over year, while consensus revenues are pegged at $6.07 billion, implying 2.97% year-over-year growth.

Other Stocks that Warrant a Look

Like Northrop Grumman we see likely earnings beats coming from these industry peers.

Raytheon Co. (NYSE:RTN) has an earnings ESP of +8.82% and a Zacks Rank #3. The company is scheduled to report second-quarter 2016 results on Jul 28.

General Dynamics Corp. (NYSE:GD) has an earnings ESP of +2.17% and a Zacks Rank #2. The company is scheduled to report second-quarter 2016 results on Jul 27.

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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