Rockwell Collins Inc.
) announced that it would release its first quarter fiscal 2013
earnings results ending Dec 31, 2012, before the market opens on
Jan 18, 2012. Last quarter, it posted a +21.1% surprise. Let's
see how things are shaping up prior to the announcement.
Factors to Consider this Quarter
Rockwell Collins is the foremost global supplier of
communications and avionics equipment for both commercial and
military customers. Its balanced exposure to both types of
customers allows the company to use government funding to develop
products for the dual-end market. The dual-end market leads to
higher volume sales, which create economies of scale in
cost-sensitive government contracts.
However, currently the U.S. defense spending is negatively
impacted by the Budget Control Act of 2011. The first part
dictates a $487.0 billion reduction to previously-planned defense
spending over the next decade. The second part is a sequester
mechanism that would impose an additional $500.0 billion of cuts
on defense spending, if the Congress is not able to reduce the
U.S. deficit by $1.2 trillion.
In order to stem the rot in the massive U.S. debt, President
Obama and Congress are struggling to cut more than a trillion
dollars in government spending. However till date the Congress
has not passed the 2013 defense department budget proposed last
year by the Pentagon. Instead it has approved a level of spending
comparable with fiscal 2012.
The pessimistic mood is also shared by the Rockwell Collins
management who are expecting around 10% fall in the top line of
its Government Systems business in the ongoing fiscal. Management
expects the downslide would only be partially offset by a 7%
top-line upside in its Commercial Systems business. The upside
would stem from a steady recovery in the business and regional
As a result, our proven model does not conclusively show that
Rockwell Collins is likely to beat earnings this quarter. That is
because a stock needs to have both a positive Earnings ESP and a
Zacks Rank of #1, 2 or 3 for this to happen. That is not the case
here as you will see below.
Zacks ESP: This is because the Most Accurate estimate stands at
88 cents while the Zacks Consensus Estimate is higher at 90
cents. That is a difference of -2.2%.
Zacks Rank #3 (Hold). Rockwell Collins' Zacks Rank #3 (Hold)
complicates the predictive power of ESP because the Zacks #3 Rank
when combined with a negative ESP makes surprise prediction
difficult. We thus caution against the stock going into the
earnings announcement, especially when the company is witnessing
negative estimate revisions momentum.
Other Stocks to Consider
ROCKWELL COLLIN (COL): Free Stock Analysis
L-3 COMM HLDGS (LLL): Free Stock Analysis
MOOG INC A (MOG.A): Free Stock Analysis
To read this article on Zacks.com click here.
Here are some other companies you may want to consider on the
basis of our model which shows that they have the right
combination of elements to post an earnings beat this quarter:
) has Earnings ESP of +1.22% and carries a Zacks Rank #2 (Buy).
It is scheduled to report its fourth quarter results on Jan 21.
L 3 Communications Holdings Inc.
) has Earnings ESP of +0.94% and carries a Zacks Rank #3 (Hold).
It is scheduled to report its fourth quarter results on Jan 30.