Will Robust Order Growth Drive Raytheon's (RTN) Q3 Earnings?
Raytheon Company RTN is scheduled to release third-quarter 2018 results on Oct 25, before the opening bell.
The company's revenues are likely to have gained from a solid order inflow, especially in Missile Systems business unit, in the quarter under review. Last reported quarter, the company delivered a positive earnings surprise of 5.60%.
Let's take a closer look at the factors influencing Raytheon's quarterly results.
Missile Systems Unit to Drive Growth
Over the last few quarters, Raytheon’s Missile Systems (MS) business unit that represents almost 30% of the company's total business sales has been one of the major growth drivers. Keeping this trend alive, Raytheon is
poised to benefit from this unit in the third quarter as well.
During the third quarter, the MS segment secured some major contracts and agreements. It gained a $1.5-billion contract from the U.S. Army for the production of Poland's Patriot Integrated Air and Missile Defense System. The segment also won a $467-million deal from the U.S. Navy for the production of 44 Standard Missile-3 Block IB interceptors. Additionally, the segment clinched a $315-million deal for the production of the Griffin Missiles.
Another significant milestone was achieved during the quarter when Sweden became Raytheon’s 16th overseas customer by signing an agreement to purchase Ratheon’s Patriot system from the U.S. Army. Such impressive order inflows along with other notable developments should boost this unit’s top line in the to-be-reported quarter.
In line with this, the Zacks Consensus Estimate for the MS segment’s third-quarter sales is pegged at $2,177 million, reflecting year-over-year growth of 11.9%.
Other Factors to Consider
Considering the solid contract inflow the company witnessed in the third quarter, we may expect the upcoming results to reflect a notable operating margin expansion. This, in turn, should boost earnings for Raytheon.
However, a transaction related to a group annuity contract was closed by the company this July, and an unfavorable non-cash pension settlement charge of $228 million, after tax, will be recognized in third-quarter 2018, primarily related to the accelerated recognition of losses in those plans. Subsequently, this is expected to have an estimated unfavorable earnings per share impact of 79 cents in the quarter. To this end, the Zacks Consensus Estimate for Raytheon's third-quarter earnings pegged at $1.94 per share reflects year-over-year decline of 1.5%.
Raytheon Company Price and EPS Surprise
Raytheon Company Price and EPS Surprise | Raytheon Company Quote
What the Zacks Model Unveils
Our proven model does not conclusively show that Raytheon is likely to beat estimates 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. Unfortunately, this is not the case with Ratheon.
Earnings ESP: Raytheon has an Earnings ESP of -4.03%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Raytheon has a Zacks Rank #2.
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 you may want to consider as our model shows that these 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 #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Transdigm Group TDG is expected to report third-quarter 2018 results on Nov 8. The company has an Earnings ESP of +0.78% 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 +0.36% and a Zacks Rank #3.
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