Will Boeing (BA) Miss Earnings Estimates on Defense Hardship? - Analyst Blog

Boeing Co.BA is set to report first-quarter results on Wednesday, Apr 22, 2015 before the market opens.

In the previous quarter, the company had reported a positive earnings surprise of 11.59%. Moreover, the company surpassed the Zacks Consensus Estimate in all of the past four quarters with an average beat of 13.72%.

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

Factors to Influence this Quarter

This aerospace behemoth has had a much better 2015 so far compared with the previous year, when the stock faltered on the bourses. The company's new 737 Max and 767 models have drawn a lot of interest while the 787 Dreamliner continues to do well. Although sales for jumbo jets are periodic, Boeing has managed to book an impressive backlog.

The company recently reported strong first-quarter 2015 deliveries, with commercial deliveries jumping more than 14% year over year. The Next Generation 737 model continued to be the pillar of Boeing's strength in the commercial airplane sector with deliveries of 121 airplanes, followed by its 787 Dreamliner model with 30 deliveries, pumping out at 10 a month.

Boeing's Commercial Airplanes segment is bound to gain from the tepid oil price scenario. Demand for commercial planes from different countries, mainly from the developing ones, is more likely to come through while oil prices remain low. Cargo traffic might also improve in this scenario.

In the defense, security, and space business, Boeing took prudent steps in realigning its position given the budget austerity. It has declared the formation of a new organization - BDS Development − during the quarter. The move is expected to enhance product efficiency and lower costs for Boeing's defense customers in addition to maintaining delivery schedules.

Also, developed as well as developing nations round the world have increased their defense budget to counter terrorism, thereby boosting Boeing's prospects.

That said, we have to remain cautious of the weak defense budget picture which has pushed Boeing's first quarter defense deliveries lower. Boeing's deliveries in the defense and space business slowed down to 42 in the first quarter 2015 from 46 a year ago.

One can also not ignore increasing competition, particularly from the prime defense contractor Lockheed Martin Corp. LMT , which controls a major share of the market.

Earnings Whispers?

Our proven model does not conclusively show that Boeing 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, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: Boeing has a Zacks ESP of -4.32%. This is because the Most Accurate estimate stands at $1.77 while the Zacks Consensus Estimate is pegged higher at $1.85.

Zacks Rank: Boeing carries a Zacks Rank #3 (Hold) which increases the predictive power. However, the company's negative ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies you may want to consider on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter:

Huntington Ingalls Industries, Inc. HII with an Earnings ESP of +2.91% and a Zacks Rank #1 (Strong Buy).

Raytheon Co. RTN with an Earnings ESP of +28.06% and a Zacks Rank #3.

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BOEING CO (BA): Free Stock Analysis Report

RAYTHEON CO (RTN): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

HUNTINGTON INGL (HII): 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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