Earnings Preview: RTN

Zacks

Raytheon Co. (RTN) is expected to release its third quarter 2012 results on October 25, 2012. The Zacks Consensus Estimate for the third quarter of 2012 is $1.27 per share (year-over-year decrease of 8.43%) on revenues of $6,157 million (marginal year-over-year increase of 0.40%).

Second-quarter 2012, a Synopsis

Raytheon Company reported second quarter 2012 earnings from continuing operations of $1.41 per share, beating the Zacks Consensus Estimate of $1.21. The result was also higher than the year-ago quarter’s earnings of $1.20 per share. The increase was driven by operational improvements and capital deployment actions.

Revenue was $5.99 billion, down 3.4% from $6.20 billion in the year-ago period. It also missed the Zacks Consensus Estimate by $30 million. The company reported net income of $471 million, higher than $438 million in the prior-year period. Total backlog at the end of the reported period was $33.9 billion, down from $34.5 billion in the year-ago period.

Read our full coverage on this earnings report: Raytheon Beats EPS Est, Misses on Revs

Guidance for 2012

Raytheon had maintained its sales guidance in the range of $24.5 billion to $25 billion for 2012. Its earnings per share guidance currently stand at $5.70–$5.85 for 2012.

Zacks Consensus

The analysts covered by Zacks expects Raytheon to post third-quarter 2012 earnings of $1.27 per share, lower than $1.39 delivered in the prior-year quarter. Currently, the Zacks Consensus Estimate ranges between earnings of $1.22 and $1.32 a share.

For 2012, the Zacks Consensus Estimate stood at $5.33 per share, lower than its prior-year earnings of $5.74 per share. The current Zacks Estimate ranges between $5.20 and $5.45 per share.

Estimate Revisions Trend

Agreement

We see a static to declining trend for estimates for the third quarter of 2012. Of the 18 estimates, none moved in the upward direction over the last 30 days. However, one moved in the opposite direction over the last 30 days.

Similarly, for full-year 2012, among the 19 estimates, none of the estimates moved in the upward direction over the last 30 days while one moved in the opposite direction over the last 30 days.

The analysts seem to be slightly negative for third quarter as well as full-year 2012.

Magnitude

The Zacks Consensus Estimate for the third quarter of 2012 inched down by a penny to 1.27 cents over the last 30 days. For full-year 2012, the consensus estimate moved down by a penny to $5.33 for the last 30 days.

Surprise History

With respect to earnings surprises, Raytheon Energy has topped the Zacks Consensus Estimate over the last four quarters in the range of 4.51% to 28.89%. The average surprise over the last four quarters remained at positive 18.95%. The earnings beat in December 2011 was the highest at 28.89%.

Our Recommendation

We believe that Raytheon is one of the best-positioned companies among the large-cap defense players, due to its non-platform-centric focus, rising international sales, substantial presence in classified market, strong cash flow generation and its focus on shareholder value.

However, this is offset by apprehensions over the future growth of the U.S. defense budget, the fate of high-cost programs, risks related to key project executions and order cancellations. Raytheon presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Massachusetts, Raytheon Company is one of the largest aerospace and defense companies in the U.S., with a diversified line of military products, including missiles, radars, sensors, surveillance and reconnaissance equipment, communication and information systems, naval systems, air traffic control systems, and technical services.

Some of its competitors are L-3 Communications Holdings Inc. (LLL) and FLIR Systems Inc. (FLIR).

Read the Full Research Report on FLIR

Read the Full Research Report on RTN

Read the Full Research Report on LLL

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