Rockwell Collins (COL) Q3 Earnings: What's In The Cards?

Aviation electronics maker Rockwell Collins Inc. (NYSE:COL) is slated to report third-quarter fiscal 2016 results on Jul 25 before the opening bell. In the last reported quarter, the company recorded a positive earnings surprise of 0.78%. In the trailing four quarters, three beats propelled the company to post an average positive surprise of 5.91%.

Let’s see how things are shaping up for this announcement.

ROCKWELL COLLIN Price and EPS Surprise

ROCKWELL COLLIN Price and EPS Surprise | ROCKWELL COLLIN Quote

Factors at Play

Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers.

On its second-quarter fiscal 2016 earnings call, the company revealed that it expects its overall business to return to growth in the third quarter of fiscal 2016. Margins are expected to be flat sequentially in the fiscal third quarter.

Rockwell Collins had also guided that it will draw the benefits of tax planning strategies in the second half of fiscal 2016. These strategies, which entailed utilizing capital loss carryforwards from prior years, are now expected to benefit the to-be-reported quarter. The third-quarter tax rate is likely to be in the mid-teens and, for the fiscal, it is expected between 22% and 23%.

For the fiscal third quarter, the Zacks Consensus Estimate for earnings is $1.58 a share, reflecting an increase of 19.05% year over year, while consensus revenues are pegged at $1.35 billion, implying 4.18% year-over-year growth.

Earnings Whispers

Our proven model does not conclusively show that Rockwell Collins is likely to beat earnings 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. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +0.63%. This is because the Most Accurate estimate of $1.59 is higher than the Zacks Consensus Estimate of $1.58.

Zacks Rank: Rockwell Collins carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

A Stock that Warrants a Look

Unlike Rockwell Collins we see likely earnings beats coming from these industry peers.

Northrop Grumman Corp. (NYSE:NOC) has an earnings ESP of +4.42% and a Zacks Rank #2. The company is scheduled to report second-quarter 2016 results on Jul 27.

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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