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Will Solid Sales Volume Drive Raytheon's (RTN) Q1 Earnings?

Zacks Equity Research

Raytheon Company RTN is scheduled to release first-quarter 2019 results on Apr 25, before the opening bell.

The company's revenues are anticipated to be driven by a consistent order inflow, which along with favorable FAS/CAS Operating Adjustment are likely to boost its earnings in the to-be-reported quarter. In the last reported quarter, the company delivered a positive earnings surprise of 1.38%.

Why a Likely Positive Earnings Surprise

Our proven model shows that Raytheon is likely to report earnings beat 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. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. This is the case here as you will see below.

Earnings ESP: Raytheon has an Earnings ESP of +0.54%. 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 #2, which when combined with a positive ESP makes us confident about an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

Raytheon Company Price and EPS Surprise

Raytheon Company Price and EPS Surprise | Raytheon Company Quote

Let's take a closer look at the factors influencing Raytheon's quarterly results.

Missile Systems: A Key Catalyst

Raytheon’s Missile Systems (MS) business unit, which represents almost 30% of the company's total sales, continues to be one of the major revenue drivers. Keeping this trend alive, Raytheon is poised to benefit from this unit in the quarter to be reported as well.

During the first quarter, the MS segment successfully secured some major contracts from the Pentagon. Such impressive order inflows should boost this unit’s backlog, which we expect to get reflected in the upcoming quarterly results.

Other Factors Under Consideration

Improved sales volume expectation for the company’s other segments has made us optimistic about Raytheon’s top-line growth in the first quarter. For quarterly revenues, the Zacks Consensus Estimate is pegged at $6.58 billion, indicating growth of 5.1% from the year-ago reported figure. Notably, this is in line with the higher end of the company’s projected range of $6.45-$6.58 billion.

On the bottom-line front, Raytheon is anticipated to benefit from its solid revenue growth. Moreover, favorable FAS/CAS Operating Adjustment and the retirement benefits non-service expenses should continue to boost the company’s earnings in the first quarter. The Zacks Consensus Estimate for Raytheon's first-quarter earnings stands at $2.45, implying growth of 11.4% from the year-ago reported figure. This estimate is above the mid-point of the company’s guided range of $2.37-$2.42.

For 2019, the company expects higher tax rate compared with that of 2018. This increase can be primarily attributed to the higher pretax income and the absence of benefits from the discretionary pension contribution and certain tax planning initiatives recorded last year. We may expect the upcoming quarterly results to reflect a similar higher tax rate.

Other Stocks That Warrant a Look

Here are some prospective players 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 this quarter:

Northrop Grumman Corp. NOC is expected to report first-quarter 2019 results on Apr 24. The company has an Earnings ESP of +0.59% and a Zacks Rank #3.

General Dynamics Corp. GD is anticipated to report first-quarter 2019 results on Apr 24. The company has an Earnings ESP of +1.35% and a Zacks Rank #3.

Huntington Ingalls Industries, Inc. HII is expected to report first-quarter 2019 results on May 2. The company has an Earnings ESP of +1.93% and a Zacks Rank #3.

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