Northrop Grumman Corporation (NYSE:NOC) is scheduled to release fourth-quarter and 2017 results on Jan 25, before the opening bell.
Lack of orders from Pentagon as well as international allies of the United States may hamper the company’s fourth quarter sales growth. Moreover, the Aerospace Systems segment is not likely to be a major
support for Northrop Grumman this time around.
Let’s discuss the factors influencing the defense giant’s quarterly release.
Will Aerospace Systems Remain the Key Contributor?
The Aerospace Systems segment fetches almost half of Northrop Grumman’s sales and has traditionally been a primary contributor to growth.
Usually, increased demand as well as deliveries of manned aircraft boosts sales at this segment. However, the segment managed to clinch very few contracts in the fourth quarter.
This is reflected in the Zacks Consensus Estimate for the segment’s Q4 revenues, which stands at $2,861 million, reflecting an annual decline of 0.4%.
Lack of Orders to Impact Sales
Defense majors have been receiving a slew of contracts from the Pentagon and foreign U.S. allies, Northrop Grumman being no exception. However, in the fourth quarter, the company won a handful of notable
deals only like the $445-million Air Force contract to support LAIRCM program.
Consequently, the Q4 revenue growth expectation is not very ambitious. The Zacks Consensus Estimate for sales is pegged at $6.37 billion, reflecting a 0.4% year-over-year decline.
Other Factors to Consider
The Mission Systems business has been benefiting from increased volume for sensors and processing programs along with air and missile defense programs and Advanced Capabilities business. Considering a
continuation of this trend in the final quarter of the year as well, Northrop Grumman had slightly lifted the 2017 sales expectation for this unit during the third-quarter earnings call.
Taking this into consideration, the Zacks Consensus Estimate for the unit’s Q4 revenues is pegged at $2,906 million, reflecting annual growth of 2.1%.
Meanwhile, unallocated corporate expenses rose $90 million in the third quarter, primarily on account of the Orbital ATK acquisition. As the transaction is still on track, we expect the company to incur higher
unallocated corporate expenses in the fourth quarter as well.
Northrop Grumman Corporation Price and EPS Surprise
Northrop Grumman Corporation Price and EPS Surprise | Northrop Grumman Corporation Quote
Earnings Whisper
Our proven model does not conclusively shows an earnings beat for Northrop Grumman this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy)
or 3 (Hold) for this to happen. This is not the case here, as we will see below:
Zacks ESP: Northrop Grumman has an Earnings ESP of -0.69%. This is because the Most Accurate estimate is pegged at $2.73, lower than the Zacks Consensus Estimate of $2.75. You can uncover the best
stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Northrop Grumman carries a Zacks Rank #2, which increases the predictive power of ESP. However, the negative earnings ESP makes surprise prediction difficult.
Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are a few companies in the Aerospace-Defense sector that have the right combination of elements to post an earnings beat this quarter.
Boeing (NYSE:BA) is expected to report quarterly results on Jan 31. The company has an Earnings ESP of +0.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntington Ingalls Industries (NYSE:HII) has an Earnings ESP of +3.43% and a Zacks Rank #2. The company is expected to report quarterly results on Feb 15.
General Dynamics (NYSE:GD) has an Earnings ESP of +0.19% and a Zacks Rank #2. The company is slated to release fourth-quarter results on Jan 24.
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Northrop Grumman Corporation (NOC): Free Stock Analysis Report
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Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report
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