Defense Stock Q2 Earnings Reports Due on Jul 29: BA & GD

The majority of defense bigwigs are expected to release Q2 financial numbers this week. This earnings season for the defense space was kickstarted by Lockheed Martin LMT which announced its numbers on Jul 21. Notably, the company beat estimates for both earnings and revenues.

We have been witnessing a modest downturn in the defense space since the novel coronavirus started to spread worldwide in mid-March 2020. Commercial aerospace players suffered the most in the second quarter, as air travel demand remained substantially low, thereby dragging down projections for the ongoing earnings season.

Moreover, to maintain proper social distancing, a handful of defense manufacturers either shut down their production units for a few days or reduced production rate by employing fewer workforce.

No doubt this caused production inefficiencies, thereby dealing a blow to the industry’s margins. Deliveries of finished products were hampered owing to stringent travel restrictions, which are likely to have dragged down revenues and pushed up costs of storage.

Considering these, we remain a bit skeptical about the broader Aerospace sector, which constitutes defense stocks.

Q2 Projections

Aerospace sector Q2 earnings are expected to plunge 65.5% year over year while revenues are projected to show 7.2% decline.  

For more details on quarterly releases, you can go through the latest Earnings Preview.

Defense Stocks to Watch

Let's take a look at some defense companies that are scheduled to report second-quarter 2020 earnings on Jul 29 and find out how things have shaped up prior to the announcements.

The Boeing Company’s BA second-quarter deliveries reflected a massive 77.8% year-over-year plunge in commercial shipments. Its defense deliveries however improved 18.9% in the soon-to-be-reported quarter. Low commercial service volume is expected to have weighed on Boeing Global Services (BGS) unit’s performance in the second quarter.

The company has approximately 450 737 MAX aircraft built and stored. No doubt storage and maintenance costs of these undelivered jets have pushed up Boeing’s quarterly expenses, thereby impacting its Q2 earnings (read more: Escalated Expenses to Weigh on Boeing's Q2 Earnings).

According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing has an Earnings ESP of -4.82% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise

The Boeing Company price-eps-surprise | The Boeing Company Quote

Prolonged travel restrictions and low demand across the board are expected to have hit second-quarter performance of General Dynamics Corp.’s GD Aerospace Unit. Additionally, increased supply-chain issues during the second quarter might have further affected deliveries.

The revenue dip in majority of the company’s business segments is likely to have negatively impacted its overall Q2 performance. Further, the company is expected to have incurred significant costs to sanitize the work environment in its facilities and provide additional PPE kits. This in turn might have dragged down its Q2 earnings (read more: Will Aerospace Sales Hurt General Dynamics' Q2 Earnings?).

General Dynamics has an Earnings ESP of -3.93% and a Zacks Rank #4.

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation price-eps-surprise | General Dynamics Corporation Quote

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The Boeing Company (BA): Free Stock Analysis Report

General Dynamics Corporation (GD): Free Stock Analysis Report

Lockheed Martin Corporation (LMT): Free Stock Analysis Report

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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.

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