Defense major General Dynamics Corp. (NYSE:GD) is set to release second-quarter 2016 results before the opening bell on Jul 27. In the preceding quarter, General Dynamics delivered a positive earnings surprise of 9.35%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that General Dynamics is likely to beat earnings because it has the right combination of two key ingredients.
Zacks ESP: General Dynamics has an Earnings ESP of +2.17%. That is because the Most Accurate estimate is $2.35 while the Zacks Consensus Estimate is pegged lower at $2.30. This is a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: General Dynamics 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 General Dynamics' Zacks Rank #2 and +2.17% ESP makes us reasonably certain of an earnings beat.
What’s Driving the Better-Than Expected Earnings?
General Dynamics earns revenues from a broad portfolio of products and services that help to keep its overall growth momentum steady. This Gulfstream jet, tank and war ship manufacturer is one of the only two contractors in the world equipped to build nuclear-powered submarines.
Jet sales at the Gulfstream business continue to grow amid a volatile defense budget. Gulfstream is expected to contribute more significantly to General Dynamics’ earnings, going forward. Although the company expects revenues from this segment in 2016 to be slightly lower and margins somewhat higher compared with 2015 levels, 2017 will likely see higher revenues and earnings if the G500 is delivered in the fourth quarter of 2016.
Although the company did not disclose any second quarter guidance, it stated during the first-quarter earnings call that it expects the second quarter to be weaker than the first in the nickel category.
Overall, for the second quarter, the Zacks Consensus Estimate for earnings is $2.30 a share, reflecting an increase of 1.32% year over year, while consensus revenues are pegged at $7.95 billion, implying 0.91% year-over-year growth.
Other Stocks that Warrant a Look
Like General Dynamics 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.
Northrop Grumman Corp. (NYSE:NOC) has an earnings ESP of +4.00% 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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