Spirit AeroSystems (SPR) Q3 Earnings: A Beat In The Cards?

Spirit AeroSystems Holdings, Inc. (NYSE:SPR) , a designer and manufacturer of aerostructures for both commercial and defense aircraft, is set to release third-quarter 2016 results on Nov 1, before the opening bell.

In the preceding quarter, the company posted a positive earnings surprise of 15.24%. Moreover, Spirit Aerosystems outperformed the Zacks Consensus Estimate in three out of the trailing four quarters, the average positive surprise being 8.17%.

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

Why a Likely Positive Surprise?

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

Zacks ESP: Spirit Aerosystems has an Earnings ESP of +0.94%. That is because the Most Accurate estimate is $1.08 while the Zacks Consensus Estimate is pegged lower at $1.07. This is a meaningful and leading indicator of a likely positive earnings surprise.Please check our Earnings ESP Filterthat enables you to find stocks that are expected to come out with earnings surprises.

Zacks Rank: Spirit Aerosystems has a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

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

The combination of Spirit Aerosystems’ Zacks Rank #3 and +0.94% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than Expected Earnings?

Currently, continued growth in revenue passenger miles is the most powerful underlying trend in the global aviation business. On the other hand, considerably low fuel prices have been boosting airline traffic to record high levels over the past two years. These factors along with growing global demand for commercial airplanes are expected to boost sales of large aerostructures and components offered by Spirit AeroSystems.

Moreover, the company’s long-term contracts with industry bellwethers like The Boeing Company (NYSE:BA) and Airbus Group (PA:AIR) SE (OTC:EADSY) should help boost revenues.

Among the major highlights of the quarter, the installation of the world’s largest autoclave by Spirit Aerosystems at its Wichita, KS, facility is a notable one. This is expected to increase production at the company's composite fuselage business and expand overall composite production capability.

Further, during its second-quarter earnings call, management raised the cash guidance to $350–$400 million reflecting its strong capital structure. The company also refinanced its debt at low interest rates, which will reduce interest expense in the third quarter and beyond.

Meanwhile, the industry in which Spirit AeroSystems operates remains incredibly dynamic and competitive.

For the third quarter, the Zacks Consensus Estimate for earnings per share of $1.07 reflects a 20.11% year-over-year improvement, while sales are anticipated to be up 2% to $1.65 billion.

Stocks to Consider

Here are a few 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:

Embraer S.A. (NYSE:ERJ) has an earnings ESP of +3.70% and a Zacks Rank #2. The company is scheduled to report quarterly results on Oct 31.

Huntington Ingalls Industries, Inc. (NYSE:HII) , slated to report on Nov 3, has an earnings ESP of +2.09% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Triumph Group, Inc. (NYSE:TGI) has an earnings ESP of +4.27% and a Zacks Rank #3. The company is slated to release results on Nov 3.

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