Will Raytheon Co. (RTN) Beat Q2 Earnings on Foreign Sales?


Raytheon Co. (RTN), one of the major defense contractors, is set to report its second-quarter 2014 results on Jul 24 before the market opens. Last quarter, it posted a positive surprise of 6.25%.

In fact, the defense major has delivered positive earnings surprises in the trailing four quarters, with an average beat of 15.74%. Let’s see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Raytheon is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen.

Positive Zacks ESP: This defense major currently has an Earnings ESP of +3.77%. This is because the Most Accurate estimate stands at $1.53 per share, while the Zacks Consensus Estimate is pegged at $1.50.

Zacks Rank: Raytheon carries a Zacks Rank #3 (Hold) which when combined with a +3.77% ESP makes us confident of an earnings beat.

Note that stocks with Zacks Rank #1, 2 or 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.

Factors to Consider This Quarter

Raytheon 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.

Although the tepid budget scenario seems to have put a lid on big awards, this defense major has been able to clinch quite a few modest deals during the June quarter. The 2014 fiscal budget puts emphasis on Raytheon’s prominent programs including Missile and Space systems, which will boost the company’s revenue stream.

Foreign military contracts also continue to be the vital growth driver for Raytheon. On Jun 19, Raytheon Missile Systems division won a contract modification valued at $391.5 million to build radio-controlled anti-tank missiles for the U.S. Army and Marine Corps, as well as for the Saudi Arabia and Oman militaries. Deliveries will continue through Mar 2018.

Among focus areas, cyber-oriented work is expected to yield solid growth. To that end, the majority of acquisitions made by Raytheon in recent times have been in the cyber field. The company plans to increase its focus on new M&A exploring the commercial prospects of cyber.

In terms of contract wins, Raytheon has been receiving awards, though small in size, from the Pentagon for cyber-related work. In April this year, Raytheon won a $4.7 million contract to continue state cyber-protection support. Again, the company was awarded an $8.5 million contract by the Office of Naval Research to build the world's most advanced digital radar system.

Other Stocks to Consider

Here are some other companies in the aerospace and defense space having the right combination of elements to post an earnings beat this quarter.

Huntington Ingalls Industries, Inc. (HII) has an earnings ESP of +2.20% and carries a Zacks Rank #2 (Buy).

Alliant Techsystems Inc. (ATK) has an earnings ESP of +6.53% and carries a Zacks Rank #3 (Hold).

Curtiss Wright Corp. (CW) has an earnings ESP of +1.28% and carries a Zacks Rank #2 (Buy).

Read the Full Research Report on RTN
Read the Full Research Report on HII
Read the Full Research Report on ATK
Read the Full Research Report on CW

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