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Precision Castparts (PCP) to Report Q2 Earnings: What's in Store?

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Precision Castparts Corp.PCP is slated to report second-quarter fiscal 2016 results on Oct 22, 2015. Last quarter, the company posted a negative surprise of 5.9%. In addition, the stock has delivered an average negative surprise of 2.0% for the trailing four quarters.

Let's see how things are shaping up for this announcement.

Factors to Influence Q2 Results

Precision Castparts' diversified business line, which helps it neutralize the operating risks associated with a single business, remains one of its major strengths. Increasing demand for Industrial gas turbines and futuristic aircraft engines indicates bright prospects for its Investment Cast Products segment. Moreover, certain cost-restructuring initiatives undertaken by the company's Forged Products Segment are expected to combat the challenging oil & gas market scenario, thereby limiting the adverse impact of this volatility.

Moreover, increased activities in target aerospace markets and solid prospects of commercial aerospace market are likely to act as growth drivers in second-quarter fiscal 2016. Surge in demand for futuristic aircraft engines has particularly unlocked a number of commercial opportunities, which will likely drive growth in the to-be-reported quarter.

Also, Precision Castparts had successfully completed the acquisition of Composite Horizons and Aramco during the first quarter of fiscal 2016. We believe these acquisitions will act as a growth driver by strengthening the prospects of the company in carbon & ceramic matrix as well as aeroengine components.

However, despite these positives, volatility in the oil & gas market has been one of the biggest concerns for the company, which has affected its financial performance over the past few quarters and is likely to hit the second-quarter results as well. Moreover, rising fuel costs and currency volatility are other major concerns before the company, which may pose significant headwinds in the to-be-reported quarter quarter.

Earnings Whispers

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

Negative Zacks ESP: Precision Castparts has a negative Earnings ESP of 3.74%, which is the difference between the Most Accurate estimate of $2.83 and the Zacks Consensus Estimate of $2.94.

Zacks Rank: Precision's Zacks Rank #2, when combined with a negative Earnings ESP, makes surprise predictions difficult.

Notably, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks That Warrant a Look

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

Allegiant Travel Company ALGT , with an Earnings ESP of +0.76% and a Zacks Rank #2.

The Chubb Corporation CB , with an Earnings ESP of +3.57% and a Zacks Rank #1.

Capital One Financial Corporation COF , with an Earnings ESP of +2.08% and a Zacks Rank #3.

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CAPITAL ONE FIN (COF): 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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