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GD Preview: Trends Call for a Miss - Analyst Blog

Posted: 1/22/2013 4:40:00 PM
Referenced Stocks: GD;LLL;SAI;UTX

Defense operator General Dynamics Corporation ( GD ) is set to report fourth quarter and full year 2012 results on Jan 23, 2013. Last quarter, it posted a  negative 3.95% earnings surprise. Let's see how things are shaping up for this announcement.

Factors to Consider this Past Quarter

Like all other defense peers, General Dynamics is facing the risk of huge defense budget cuts which would likely lead to funding delays, thereby resulting in delay in performance of the contract. Moreover, the company's negative outlook on sales from Information Systems & Technology has led the company to narrow its earnings expectation to a range of $7.00-$7.05 from $7.00-$7.10 per share.

General Dynamics nevertheless continued to grab contracts at regular intervals in the quarter. The company also landed with a few acquisitions, which include the acquisition of Applied Physical Sciences Corp. of Groton, Connecticut.  The acquisition would enhance the portfolio of Marine Systems while providing it with its competent engineering programs.

Earnings Whispers?

Our proven model does not conclusively show that General Dynamics is likely to beat earnings this quarter also. That is because a stock needs to have both a positive Earnings Expected Surprise Prediction ("ESP") (Read: Zacks Earnings ESP: A Better Method ) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Positive Zacks ESP:   That is because the Most Accurate estimate stands at $1.77 while the Zacks Consensus Estimate is lower at $1.92. That is a difference of -7.81%.

Zacks #3 Rank (Hold). General Dynamics carries a Zacks Rank #3 (Hold).

This rating when combined with a negative ESP predicts that General Dynamics is not likely to beat earnings this quarter again. We also caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:  

L-3 Communications Holdings Inc. ( LLL ) has Earnings ESP of +0.94% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter 2012 results on Jan 30, 2013.

United Technologies Corp. ( UTX ) has Earnings ESP of +2.94% and carries a Zacks Rank #3 (Hold). It is scheduled to report its fourth quarter 2012 results on Jan 23, 2013.

SAIC, Inc. ( SAI ) has Earnings ESP of +1.92% and carries a Zacks Rank #3 (Hold).

GENL DYNAMICS (GD): Free Stock Analysis Report

L-3 COMM HLDGS (LLL): Free Stock Analysis Report

SAIC INC (SAI): Free Stock Analysis Report

UTD TECHS CORP (UTX): Free Stock Analysis Report

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