We expect General Dynamics Corp. (GD) to beat expectations when it reports third quarter 2013 results on Oct 23. Last quarter, the company posted a positive earnings surprise of 11.73%. Let’s see how things are shaping up prior to this announcement.
Why a Likely Positive Surprise?
Our proven model shows that General Dynamics is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: The Earnings ESP (Expected Surprise Prediction), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +2.40%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.
Zacks #3 Rank (Hold): Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of General Dynamics’ Zacks Rank #3 (Hold) and +2.40% ESP makes us confident of a positive earnings beat this quarter.
What is Driving the Better-than-Expected Earnings?
General Dynamics’ revenue exposure is spread over a broad portfolio of products and services that is keeping the overall growth momentum steady. The company’s Jet sales at the Gulfstream business are continuing to see traction even in the slowing defense sales scenario. The $60 million top-of-the-line G650 large cabin business jet is in high demand, with orders booked for the next five years. Gulfstream is expected to contribute significantly to General Dynamics’ earnings going forward.
General Dynamics is proactive in lowering costs and improving competitiveness. Although the company will continue to incur expenses for adjusting its operations to market conditions, the initiatives taken by the company would help drive performance. These include consolidating the Weapons Systems business into the Munitions business and combining the U.K. business into the North American Mobile Communications operation.
Despite the defense budget uncertainty and threat of sequestration, the company continues to experience a steady flow of contracts from the Department of Defense (DoD).
Other Stocks to Consider
General Dynamics is not the only firm looking up this earnings season. We also see likely earnings beats coming from these three industry peers:
Northrop Grumman Corp. (NOC), with Earnings ESP of +1.66% and a Zacks Rank #2 (Buy).
HEICO Corporation (HEI), with Earnings ESP of +1.96% and a Zacks Rank #2 (Buy).
Engility Holdings, Inc. (EGL), with Earnings ESP of +7.04% and a Zacks Rank #3 (Hold).
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