Orbital ATK (OA) Q2 Earnings: Stock Likely To Beat Estimates

We expect Orbital ATK, Inc. (NYSE:OA) to beat expectations when it reports second-quarter 2016 results on Aug 4. Last quarter, the company's earnings were on par with estimates, bringing the trailing four-quarter average to 20.88%. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Orbital ATK is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) to be able to beat estimates and Orbital ATK has the right mix.

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is +3.85%. This is because the Most Accurate Estimate stands at $1.35, while the Zacks Consensus Estimate is pegged at $1.30. This is a meaningful and leading indicator of a likely positive surprise.

Zacks Rank: Orbital ATK currently carries a Zacks Rank #3. The combination of Orbital ATK’s favorable Zacks Rank and positive ESP makes us reasonably confident of a positive surprise this season.

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

ORBITAL ATK INC Price and EPS Surprise

Factors to Consider

For the first six months of 2016, the company expects nearly $5 billion in new orders and option exercises, of which about $3.9 billion was already received in the first four months of the year. All three of its business segments have a robust outlook for the second quarter as well as the second half of the year.

Orbital ATK exited the first quarter with a total backlog of $14.8 billion, out of which firm backlog accounted for $8.6 billion. The current backlog provides excellent visibility on top-line growth in the to-be reported quarter and the rest of the year.

Moreover, the company is involved in over 100 major Development and Production Programs. These programs, along with Orbital ATK’s wide range of product offerings, ensure an uninterrupted source of revenues and inflow of new contracts.

In addition, Orbital ATK’s rigorous cost savings initiatives will continue to boost margins in the to-be reported quarter. The company is on track with its plans to save $100 million or more in 2016.

Peer Releases

Orbital ATK is not the only company looking up this earnings season. Investors may consider other stocks that have already beaten estimates this earnings season.

Lockheed Martin Corporation (NYSE:LMT) reported second-quarter earnings of $3.32 per share, beating the Zacks Consensus Estimates of $2.92 by 13.7%.

General Dynamics Corporation (NYSE:GD) reported second-quarter earnings of $2.44 per share, beating the Zacks Consensus Estimates of $2.30 by 6.1%.

The Boeing Company (NYSE:BA) reported second-quarter loss of 44 cents per share, narrower than the Zacks Consensus Estimates of a loss of 88 cents.