Northrop Grumman Corp.
) to beat expectations when it reports first quarter 2013 results
on Apr 24.
Why a Likely Positive Surprise?
Our proven model shows that Northrop Grumman is likely to beat
earnings because it has the right combination of two key
Positive Zacks ESP:
Expected 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 at +1.16%. This is
a leading indicator of a likely positive earnings surprise for
Zacks #3 Rank (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 going into an
The combination of Northrop Grumman's Zacks Rank #3 (Hold) and
+1.16% ESP makes us confident of a positive earnings beat on Apr
What is Driving Better-than-Expected Earnings?
Despite defense spending cuts, there seems to be a number of
opportunities for the company. Northrop Grumman's product line is
well positioned in high priority categories, such as defense
electronics, unmanned aircraft and missile defense. Revenue and
earnings growth continue to be driven by its strong presence in
the current focus areas of cyber security, modernization of
defense and homeland security assets, intelligence, surveillance
and reconnaissance systems, advanced electronics and software
With the successful spin-off of its shipbuilding business, in Mar
2011, Northrop Grumman's revenue base is heavily skewed towards
programs with a short business cycle. The spin-off has fetched
$1.4 billion for the company.
Moreover, Northrop Grumman's strong order backlog, impressive
balance sheet and cash flows provide substantial financial
flexibility. An incremental dividend, ongoing share repurchases
and earnings accretive acquisitions provide bottom-line support
to the stock.
In particular, the company's diversified nature of business makes
it one of the better positioned pure defense players. Also, we
see a positive trend in the trailing four-quarter average
surprise of 12.39%, which was mainly driven by the 18.39%
positive surprise in the fourth quarter 2012.
Other Stocks to Consider
Northrop Grumman is not the only firm looking up this earnings
season. We also see likely earnings beats coming from these three
Lockheed Martin Corporation
) has an earnings ESP of +3.48% and carries a Zacks Rank #3
Alliant Techsystems Inc.
) has an earnings ESP of +11.40% and carries a Zacks Rank #3
ALLIANT TECHSYS (ATK): Free Stock Analysis
LOCKHEED MARTIN (LMT): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
RAYTHEON CO (RTN): Free Stock Analysis Report
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) has an earnings ESP of +2.34% and carries a Zacks Rank #3