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Will Buyouts Benefit L3 Technologies (LLL) in Q3 Earnings?


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L3 Technologies, Inc . LLL is expected to release third-quarter 2018 results on Oct 25, before the opening bell.

Strategic acquisitions and order growth are likely to be major growth driving factors for the company's to-be-reported quarter's results.

Strategic Deals to Aid Growth

L3 Technologies was involved in making some acquisitions in the third quarter. In September, the company acquired ASV Global, which will strengthen its unmanned maritime capabilities. In August, the company acquired Azimuth Security and Linchpin Labs, which are market-leading information security businesses. In July, L3 Technologies took over Applied Defense Solutions (ADS), a leading aerospace engineering, software development and space situational awareness company, for approximately $50 million. The acquisition is expected to generate nearly $15 million in sales for the remainder of 2018, which, in turn, should get reflected in third-quarter sales figure.

Another important event that took place during the quarter was the company's decision to combine Aerospace Systems with Sensor Systems to form the new ISR Systems Segment. The realignment decision was primarily taken to maximize growth, and improve its integration and collaboration across the enterprise. We may expect the upcoming quarterly results to duly reflect the benefits of these strategic deals.

Other Factors Under Consideration

L3 Technologies' Aerospace Systems Unit was unsuccessful in receiving any notable order, contrary to its usual trend. This, in turn, is expected to hurt the Aerospace Systems segment's top-line growth.  In line with this, the Zacks Consensus Estimate for this segment's revenue is pegged at $707 million, implying a 31% year-over-year decline.

In July, L3 Technologies divested Vertex Aerospace for $540 million, which was a strategic step toward aligning and optimizing the company's portfolio. Owing to the divestiture, the company anticipated to record growth of approximately $400 million after tax, which must have economically benefited the company in the to-be-reported quarter.

Interestingly, the company's effective income tax rate for third-quarter 2018 declined to an impressive 8% compared with 24% for third-quarter 2017. Such decline can be primarily attributed to the reversal of previously accrued amounts related to various U.S. Federal, foreign and state tax matters, and tax benefits from the U.S. Tax Cuts and Jobs Act (U.S. Tax Reform) and stock-based compensation expenses. We expect L3 Technologies to benefit significantly from such lower tax rates, which should also have a favorable impact on earnings in the upcoming quarterly results.

Furthermore, the company expects operating margin to expand in the third quarter by approximately 40 basis points, which should also benefit its quarterly earnings. In line with these developments and projections, the Zacks Consensus estimate for the company's earnings of $2.85 reflects a 45.4% year-over-year surge for the upcoming quarterly result.

Earnings Whispers

Our proven model does not show that L3 Technologies is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Earnings ESP : L3 Technologies has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank : L3 Technologies currently carries a Zacks Rank #2, which increases the probability of earnings beat. But an Earnings ESP of 0.00% makes surprise prediction difficult.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

L3 Technologies Inc. Price and EPS Surprise

L3 Technologies Inc. Price and EPS Surprise | L3 Technologies Inc. Quote

Stocks That Warrant a Look

Here are a few companies in the Aerospace sector that have the right combination of elements to post an earnings beat this quarter.

Raytheon Company RTN has an Earnings ESP of +1.07% and a Zacks Rank #2. The company is expected to report third-quarter results on Oct 25. You can see the complete list of today's Zacks #1 Rank stocks here .

Transdigm Group TDG is expected to report third-quarter 2018 results on Nov 8. The company has an Earnings ESP of +0.78% and a Zacks Rank of #2.

Leidos Holdings LDOS is expected to report third-quarter 2018 results on Oct 25. The company has an Earnings ESP of +0.37% and a Zacks Rank #3.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: LDOS , TDG , RTN , LLL



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