U.S. Markets closed

Will Robust Orders Drive General Dynamics (GD) Q1 Earnings?

Zacks Equity Research

General Dynamics Corporation GD is scheduled to release first-quarter 2019 results on Apr 24, before the opening bell.

A steady trend of contract wins should boost the company’s revenues in the first quarter.

Let’s take a detailed look at the factors influencing General Dynamics’ upcoming quarterly results.

Why a Likely Positive Earnings Surprise

Our proven model shows a likely earnings beat for General Dynamics in the first 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.

Earnings ESP: General Dynamics has an Earnings ESP of +1.35%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #3 (Hold).

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Strong Order Growth to Boost Sales

General Dynamics is witnessing increased demand from its Navy customers across all three of its shipyards. Hence, the company has been constantly investing in each of its yards, particularly emphasizing on electric boat. These investments will enable the company to support increased production associated with the Block V of the Virginia submarine program and the new Columbia ballistic missile submarine.

In fact, General Dynamics enjoys a steady flow of orders from both Pentagon and its foreign allies, courtesy of the huge demand for its enhanced military shipbuilding capabilities in the United States. Keeping up with the usual trend, such contract wins are likely to boost the company’s total revenues in the upcoming quarterly results. Subsequently, the Zacks Consensus Estimate for the company’s first-quarter sales is pegged at $8.89 billion, indicating 18% growth from the year-ago quarter’s reported figure.

Aerospace Unit: A Key Catalyst

General Dynamics’ Aerospace segment revenues are expected to receive a solid boost in the first quarter, as the segment’s Gulfstream Aerospace has been making significant progress post the NORDAM Group acquisition. Moreover, the company expects to witness a rise in the deliveries of G500s, starting from 2019, which should also get reflected in the segment’s top line.

In line with this, the Zacks Consensus Estimate for the company’s largest segment’s revenues in the first quarter is pegged at $2,177 million, implying 19.3% increase from revenues reported in the year-ago quarter.

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation Price and EPS Surprise | General Dynamics Corporation Quote

Other Factors at Play

The company’s Marine Systems unit is expected to witness revenue growth, as it foresees expanding demand for submarines, surface combat, and support ships and overhaul work. Combat Systems unit is also estimated to witness a top-line improvement in the to- be-reported quarter, with the company seeing a growing demand for its Stryker vehicles and munitions.

However, General Dynamics expects to witness a dismal drop in year-over-year operating margin, as it continues the transition to the new G500 and G600 aircraft. Moreover, higher anticipated pre-owned aircraft sales are also expected to hurt operating margin. This may hurt the company’s bottom line in the first quarter. Consequently, the Zacks Consensus Estimate for General Dynamics’ first-quarter earnings is pegged at $2.38, suggesting a decline of 10.2% from the year-ago quarter’s reported figure.

Other Stocks to Consider

Here are some other defense companies you may want to consider, as our model shows that these have the right combination of elements to post earnings beat this quarter:

Raytheon Company RTN is expected to report first-quarter 2018 results on Apr 25. The company has an Earnings ESP of +1.05% and a Zacks Rank #2.

Lockheed Martin Corp. LMT is expected to report first-quarter 2019 results on Apr 23. The company has an Earnings ESP of +4.16% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls Industries, Inc. HII is expected to report first-quarter 2019 results on May 2. The company has an Earnings ESP of +4.63% and a Zacks Rank #3.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?

Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.

See Latest Stocks Today >>