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Will Defense Order Growth Boost Boeing's (BA) Q3 Earnings?

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The Boeing Company’s BA Defense, Space & Security segment continues to witness solid orders for its varied product offerings from the Pentagon as well as international allies of the United States. However, a dismal delivery figure and cost growth for KC-46 program remain major concerns. We expect Boeing’s third-quarter 2018 results, scheduled for release on Oct 24, to duly reflect these factors.

Order Flow to Boost Revenues

Keeping up with its usual trend, Boeing’s defense business won a number of multi-million-dollar contracts and a few billion-dollar contracts in the third quarter. Such solid order flows are likely to boost Boeing’s defense backlog in the soon-to-be-reported quarter.

In the second quarter of 2018, the company’s defense backlog increased 17.9% from 2017-end’s figure. Considering the solid contract wins in the third quarter, we may expect the upcoming results to reflect similar backlog growth.

Moreover, solid order growth is likely to bolster the unit’s top line in the third quarter. In line with this, the Zacks Consensus Estimate for Boeing’s defense unit’s revenues is pegged at $5,496 million, reflecting a year-over-year rise of 0.5%.

Cost Growth for KC-46

While Boeing continues to make steady progress in securing the final certification for its KC-46 Tanker program, significant cost growth for this project might hurt its bottom line marginally.

However, the fact that the company has raised its 2018 revenue guidance for the defense unit to reflect higher sales volume, should enable the segment to eventually register positive earnings growth in the quarter to be reported. In line with this, the Zacks Consensus Estimate for Boeing’s defense unit’s earnings is pegged at $592 million, reflecting a year-over-year improvement of 5.9%.

The Boeing Company Price and EPS Surprise

 

 

The Boeing Company Price and EPS Surprise | The Boeing Company Quote

Deliveries – A Gloomy Picture

Boeing announced third-quarter 2018 delivery figures on Oct 9, which reflected a 63.8% decline in defense shipments compared with the previous year. Notably, the company’s defense deliveries totaled 25 in third quarter, down from 69 dispatched in the year-ago period. Total deliveries consisted of eight CH-47 Chinook helicopters (new and renewed), two P-8s and three F-15 military aircraft.

What the Zacks Model Unveils

Our proven model shows that Boeing is likely to beat earnings in the third 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Boeing has an Earnings ESP of +0.39% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that 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 That Warrant a Look

Here are some companies in the Aerospace sector that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

L3 Technologies LLL is expected to report third-quarter 2018 results on Oct 25. The company has an Earnings ESP of +8.05% and a Zacks Rank of 2.

Leidos Holdings LDOS is expected to report third-quarter 2018 results on Oct 25. The company has an Earnings ESP of +0.37% and a Zacks Rank #3.

FLIR Systems FLIR is expected to report third-quarter 2018 results on Oct 30. The company has an Earnings ESP of +0.30% and a Zacks Rank of 3.

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