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Factors Likely to Influence Raytheon's (RTN) Earnings in Q2

Zacks Equity Research

Raytheon Company RTN is slated to report second-quarter 2019 results on Jul 25, before the opening bell.

In the last reported quarter, the missile maker delivered a positive earnings surprise of 13.06%. Furthermore, Raytheon surpassed the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 9.01%.

Let’s take a detailed look at the factors influencing Raytheon’s performance in the quarter to be reported.

Factors at Play

Raytheon continues to retain its position as one of the large-cap defense giants in the United States, thanks to its non-platform-centric focus. Strong demand for the company's advanced combat-proven defense technologies from global customers as well as solid domestic bookings hints at solid results in the second quarter.

However, management expects Raytheon’s Intelligence, Information and Services as well as Space and Airborne Systems segments to witness lower margin in the quarter to be reported. Together, these two units constitute almost 51% of the company’s total business. In case of a poor margin performance by these units, Raytheon’s bottom line might take a hit in the soon-to-reported quarter.  

The Zacks Consensus Estimate for second-quarter earnings is pegged at $2.61, indicating a 6.5% improvement from year-earlier quarter’s reported number. For quarterly revenues, the same stands at $7 billion, implying a 5.7% rise from prior-year quarter’s reported figure.

Raytheon Company Price and EPS Surprise

Raytheon Company Price and EPS Surprise

Raytheon Company price-eps-surprise | Raytheon Company Quote

Among the highlights of the second quarter, it is imperative to mention that Raytheon clinched a few significant contracts. These agreements include a $355.4-million deal for reconditioning AGM-88B High Speed Anti-Radiation Missiles (HARM) and a $234 million initial low-rate production contract to outfit all of its nuclear-powered aircraft carriers and amphibious assault ships with 23 Joint Precision Approach and Landing Systems. Another notable deal is the $151.5-million contract to providing integrated logistics support and repairs for the sustainment of the AIM-9X Block II and Block II+ missiles. These orders are likely to boost the company’s backlog, which is expected to get reflected in the upcoming quarterly results.

In June, Raytheon inked an all-stock merger deal with multinational conglomerate United Technologies Corp UTX. Considered to be the biggest merger in the U.S. aerospace and defense space, this deal will generate a conglomerate worth $121 billion (per Reuters).

On completion of the merger, Raytheon’s shareowners will own approximately 43% of the combined company. Raytheon shareowners will receive 2.3348 shares in the combined company for each Raytheon share. We may expect further development on this transaction once the company releases its quarterly result.

Earnings Whisper

Our proven model does not show that Raytheon is likely to report earnings beat in the second 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. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. This is not the case here as you will see below.

Earnings ESP: Raytheon has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Raytheon currently carries a Zacks Rank #3, which when combined with a 0.00% ESP makes earnings surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 have the right combination of elements to post an earnings beat the respective quarters:

The Boeing Company BA is scheduled to report second-quarter 2019 results on Jul 24. The company has an Earnings ESP of +2.72% and a Zacks Rank #3.

Ducommun Incorporated DCO is expected to report second-quarter 2019 results on Aug 5. The company has an Earnings ESP of +12.50% and a Zacks Rank #3.

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