L-3 Communications Holdings Inc.
) to beat expectations when it reports fourth quarter and full
year results on Jan 30, 2013.
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Why a Likely Positive Surprise?
Our proven model shows that L-3 Communications is likely to beat
earnings because it has the right combination of two key
Positive Zacks ESP: Earnings Surprise Prediction or ESP (Read:
Zacks Earnings ESP: A Better Method
), which represents the difference between the Most Accurate
estimate and the Zacks Consensus Estimate, is 0.94%. This is very
meaningful and a leading indicator of a likely positive earnings
surprise for shares.
Zacks Rank #3 (Neutral): Note that stocks with Zacks Ranks of #1,
#2 and #3 have a significantly higher chance of beating earnings.
The sell rated stocks (#4 and #5) should never be considered
while going into an earnings announcement.
The combination of L-3 Communications' Zacks Rank #3 (Hold) and
0.94% ESP makes us very confident in looking for a positive
earnings beat on Jan 30, 2013.
What is Driving the Better Than Expected
Despite defense spending cuts, there seems to be a number of
opportunities for the company. Especially, the spin-off of its
Government Services businesses has brought ample opportunities
for growth and profit expansion. Also, the spin-off has removed a
lot of uncertainty with respect to revenue and has taken away
some of the low margin businesses of the company.
Apart from the spin-off, L-3 Communications' focus on additional
internal consolidations and divestitures in order to lower
overhead costs will allow the company to focus on research and
development and increase efficiency while driving performance and
In particular, the company's diversified nature of business makes
it one of the best-positioned pure defense players. Also, we see
a positive trend in the trailing four-quarter average surprise of
6.47%, which was mainly driven by the 10.36% surprise in Jun
Other Stocks to Consider
L-3 Communications is not the only firm looking up this earnings
season. We also see likely earnings beat coming from other stocks
of the industry.
Tetra Tech Inc.
) has Earnings ESP of +2.44% and carries a Zacks Rank #2 (Buy).
Esterline Technologies Corp.
) has Earnings ESP of +18.03% and carries a Zacks Rank #2 (Buy).
The Boeing Company
) has Earnings ESP of +1.68% and carries a Zacks Rank #3