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Can Aerospace & Defense ETFs Win This Earnings Season?

The Aerospace & Defense industry appears in good shape as evident by the Zacks Industry Rank which is in the top 12% segment. Aerospace gets a miniscule weight of 1.7% in the S&P 500. Earnings for the segment are expected to jump 7.1% in Q4 on 1.4% higher revenues as per the Earnings Trends issued on January 18, 2017.

With this, investors must be interested in knowing how the sector might be performing throughout the reporting cycle, so that decide on how to play the sector. This is especially true given the sector is torn between Trump effects.

On the one hand, Trump boosted the prospect of a new US missile defense system, on the other hand, he intends to save "billions" on military purchases. Overall, Trump seeks to put an end to the defense sequester and instead raise the number of US Navy ships and expand the Air Force (read: Reasons to Buy Defense ETFs Despite Trump's Twitter Attacks ).

In such a scenario, earnings can be a good guideline to understand the future course of the sector. We have thus highlighted our earnings prediction of some of the aerospace and defense companies.

Surprise Predictions

The Boeing CompanyBA is slated to release results before the opening bell on January 25. It has a Zacks Rank #3 (Hold) and an Earnings ESP of 0.00%, putting the odds of an earnings beat in jeopardy. However, the company delivered an average positive earnings surprise of 24.66% in the last four quarters and the magnitude of earnings estimate revision has gone up by $0.02 in the last seven days. The stock has a VGM (Value, Growth and Momentum) Style Score of A.

United Technologies CorpUTX - also scheduled to report on January 25 before market open - has a Zacks Rank #3 and an Earnings ESP of 0.00%. The Zacks Consensus Estimate of $1.56 has remained unchanged in the last one month. However, it has an unimpressive VGM score of 'D'. Then again, the stock delivered positive earnings surprises in each of the last four quarters, with an average beat of 5.54%. The Zacks Industry and Sector Rank of the stock are in the top 29% and 25%, respectively.

Northrop Grumman CorpNOC is expected to report its results on January 26 before the market opens. It has a Zacks Rank #2 (Buy) and an Earnings ESP of +0.80%, indicating a reasonable chance of beating estimates this quarter. It delivered positive earnings surprises in the last four quarters, with an average beat of 8.29%. However, the stock has an unfavorable VGM score of 'D.' The stock underwent one cent of downward earnings estimate revision in the last one month.

General Dynamics CorpGD has a Zacks Rank #3 and an Earnings ESP of +1.18%, which increases the odds of an earnings beat. The earnings surprise track over the past four quarters is decent with an average positive surprise of 5.55%. The Zacks Consensus Estimate for the yet-to-be-reported quarter is $2.54, unchanged over the last 60 days. The stock has a VGM score of 'C' which makes it dull. General Dynamics is expected to report earnings on January 27 before market open.

Bottom Line

Given that most of the companies have a moderate-to-favorable Zacks Rank and a few earnings surprises are in store this season, aerospace and defense ETFs are unlikely to offer too many negative surprises. Things are likely to be decent for the space earnings-wise and the rest will be decided by Trump (read: Trump's First Press Conference Puts These ETFs in Focus ).

Plus, investors confident about the sector, but still confused about which stock to pick, can easily play aerospace and defense ETFs like PowerShares Aerospace & Defense ETFPPA , iShares US Aerospace & DefenseITA and SPDR S&P Aerospace & Defense ETFXAR . All three have a Zacks ETF Rank #1 (Strong Buy) (see all industrials ETFs here).

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Northrop Grumman Corporation (NOC): Free Stock Analysis Report

Boeing Company (The) (BA): Free Stock Analysis Report

General Dynamics Corporation (GD): Free Stock Analysis Report

United Technologies Corporation (UTX): Free Stock Analysis Report

ISHARS-US AEROS (ITA): ETF Research Reports

SPDR-SP AER&DEF (XAR): ETF Research Reports

PWRSH-AERO&DEF (PPA): ETF Research Reports

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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.


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

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