Will Raytheon's (RTN) Missile Systems Unit Boost Q4 Earnings?

Raytheon Company (NYSE:RTN) is scheduled to release fourth-quarter and 2019 results on Jan 30, before the opening bell.

The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average beat being 8.6%.

Raytheon’s top line will likely reflect sales growth in its segments, particularly the Missile Systems segment, in the quarter to be reported.

Let’s take a detailed look at the factors that might have influenced Raytheon’s performance in the to-be-reported quarter.

Missile Systems: A Key Catalyst

Raytheon’s Missile Systems (MS) business unit represents almost 30% of the company’s total sales and continues to be one of its major revenue drivers. Higher sales volume for integrated air and missile defense solutions — Standard Missile-6 (SM-6) system — along with other missile variants are expected to have driven this segment’s performance in the fourth quarter.

In line with this, the Zacks Consensus Estimate for the MS segment’s quarterly revenues is pegged at $2,520 million, implying an 8.8% increase from the figure reported in the year-ago period. The consensus mark for the segment’s operating income is pegged at $321 million, suggesting 17.6% year-over-year growth.

Interestingly, during the quarter under review, the MS segment secured a number of major contracts, including a $1-billion contract related to the Standard Missile-6 (SM-6) system. Its backlog count in the to-be-reported quarterly results will likely reflect the same.

Revenue & Earnings Estimates

At the end of the third quarter, Raytheon increased the full-year sales outlook for its Integrated Defense Systems (IDS), Intelligence, Information and Services (IIS), Space and Airborne Systems (SAS) segment, along with the company on a whole, to reflect a combination of stronger bookings in the fourth quarter.

With each of Raytheon’s segments reflecting upbeat top-line outlook for the December-end quarter, we are optimistic about its overall revenue performance. Evidently, the Zacks Consensus Estimate for the company’s fourth-quarter sales is pegged at $8.03 billion, indicating 9.1% growth from the year-ago quarter’s reported figure.

In fact, the Zacks Consensus Estimate for a majority of the segment’s earnings reflect solid growth compared with the year-ago quarter’s reported figure.

Also, during the third-quarter earnings call, Raytheon had raised its 2019 earnings per share outlook, anticipating bottom-line growth. This is likely to get reflected in the company's quarterly bottom-line numbers. In line with this, the consensus mark for Raytheon’s fourth-quarter earnings pegged at $3.11 indicates a 6.15% improvement from the year-ago quarter’s reported figure.

What the Zacks Model Unveils

Our proven model does not show that Raytheon is likely to beat earnings estimates in the fourth quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Raytheon has an Earnings ESP of 0.00% and currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Raytheon Company Price and EPS Surprise

Stocks to Consider

Here are some defense companies you may want to consider, as our model shows that these have the right combination of elements to post earnings beat this quarter:

Textron (NYSE:TXT) is scheduled to report fourth-quarter 2019 results on Jan 29. The company has an Earnings ESP of +1.85% and carries a Zacks Rank #3, at present.

Heico Corporation (NYSE:HEI) is expected to release its quarterly numbers soon. The company has an Earnings ESP of +8.94% and currently sports a Zacks Rank #1.

Aerojet Rocketdyne Holdings (NYSE:AJRD) is likely to release its fourth-quarter 2019 results soon. The company has an Earnings ESP of +2.17% and carries a Zacks Rank of 3, currently.

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