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Is L-3 Communications (LLL) Poised for a Q3 Earnings Beat?

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Defense major L-3 Communications Holdings Inc.LLL is set to release third-quarter 2015 results before the opening bell on Oct 29. In the preceding quarter, L-3 Communications delivered a negative 5.31% earnings surprise. Let's see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that L-3 Communications is likely to beat earnings this season because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to beat estimates, and L-3 Communications has the right mix.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.11%. This is because the Most Accurate estimate is at $1.82 while the Zacks Consensus Estimate is pegged lower at $1.80. This is a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: L-3 Communications currently carries a Zacks Rank #3.

The company's Zacks Rank #3 and positive ESP make us reasonably confident of an earnings beat.

Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.

What's Driving the Better-than-Expected Earnings?

L-3 Communications is transforming its business portfolio to bring more focus to defense electronics, communications and intelligence, surveillance and reconnaissance ("ISR") markets where it has leading positions.

With rising security threats, the U.S. government has realized the need for ISR technologies and has shifted its emphasis toward high-tech intelligence equipment. On a global scale, the demand for weapons has also witnessed a gradual turn.

However, the company, on its second-quarter earnings call, stated that the third-quarter 2015 book-to-bill will likely be somewhere between 0.8 and 0.9. The third quarter has seasonally been the company's lowest book-to-bill quarter for the last two or three years.

L-3 Communications nevertheless revealed that it will continue to pursue more acquisitions and portfolio shaping opportunities in the second half of 2015. And, it expects its financial performance to improve significantly in the second half as well, leading to solid cash flow that can be effectively deployed to boost shareholder value.

Stocks That Warrant a Look

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

General Dynamics Corp. GD has an Earnings ESP of +4.76% and a Zacks Rank #3. It will report its quarterly result on Oct 28, 2015.

Northrop Grumman Corp. NOC has an Earnings ESP of +4.07% and a Zacks Rank #2. The company is scheduled to report its quarterly result on Oct 28, 2015.

Peer Release

Raytheon Company RTN reported third-quarter 2015 earnings from continuing operations of $1.47 per share, beating the Zacks Consensus Estimate of $1.40 by 5%. However, earnings lagged the year-ago figure of $1.65 by 10.9%.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

RAYTHEON CO (RTN): Free Stock Analysis Report

GENL DYNAMICS (GD): 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.


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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