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The Zacks Analyst Blog Highlights: Alcoa, Boeing, Huntington Ingalls Industries, General Dynamics and Embraer

Zacks Equity Research

For Immediate Release
 
Chicago, IL – July 08, 2014 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Alcoa (AA-Free Report), Boeing Company (BA-Free Report), Huntington Ingalls Industries, Inc. (HII-Free Report), General Dynamics Corp. (GD-Free Report) and Embraer SA (ERJ-Free Report).
 
Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday’s Analyst Blog:

Will Alcoa (AA) Surprise This Earnings Season?
 
Aluminum giant Alcoa (AA-Free Report) is set to release its second-quarter 2014 results after the close on Jul 8.  In the last quarter, the New York-based company delivered an 80% positive earnings surprise.
 
While many may think that Alcoa is no longer a major earnings season bellwether following its exclusion from the Dow Jones Industrial Average last year, its results will put a spotlight on demand trends for aluminum across a bevy of industries, which is closely linked to levels of economic activity.
 
Alcoa is also expected to provide some color on demand for aluminum across end-markets, especially aerospace, in its second-quarter commentary. Let’s see how things are shaping up for this announcement.
 
Factors to Consider This Quarter
 
Alcoa’s results should be driven by strength across aerospace and auto markets where demand for aluminum remains healthy. It is seeing healthy airline fundamentals. Alcoa, in Apr 2014, raised its growth expectations for the aerospace market to 8%-9% from 7%-8% for 2014 factoring in strong demand for both large commercial aircraft and regional jets and sustained growth in the business jet market.
 
Alcoa last month made another big push into the aerospace market as it agreed to buy U.K.-based leading jet engine components maker Firth Rixson for $2.85 billion. The acquisition reinforces the company’s aerospace business and strongly places it to capture additional growth in this fast-growing market through a broad spectrum of high-growth, value-add jet engine components.
 
Moreover, Alcoa’s aggressive cost-cutting and productivity improvement actions should support earnings in the second quarter. The company is making capital investments and remains on track to move down the cost curve and curtail capacities in its upstream business (through closer of smelters).
 
However, Alcoa is expected to face sustained pricing pressure and higher energy costs in the quarter. Realized aluminum prices fell 8% year over year in the first quarter, hurting the company’s sales in the process. Aluminum prices remain weak given its oversupply in the market.
 
Moreover, Alcoa is expected to see continued softness in non-residential construction and commercial transportation markets in Europe . Demand from the industrial gas turbine market and U.S. defense spare parts are also expected to be sluggish in the second quarter.
 
Earnings Whispers
 
Our proven model does not conclusively show that Alcoa is likely to beat the Zacks Consensus Estimate in the second quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
 
Zacks ESP: ESP for Alcoa is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 13 cents.
 
Zacks Rank #2 (Buy): Alcoa’s Zacks Rank #2 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
 
Boeing (BA) Tops Airbus in 1H14 Deliveries
 
The aerospace giant The Boeing Company (BA-Free Report) reported strong delivery numbers for the second quarter as well as the first half of 2014, beating its archrival, Airbus. This commercial aerospace behemoth is indeed flying high in spite of the many technical glitches weighing upon its popular Dreamliner model. Boeing’s share price closed at $128.51 on Jul 3, reflecting a gain of 22.28% over the last twelve-month period.
 
During the first half of the year, Boeing delivered 342 commercial jetliners, 11.8% higher than the year-ago level. On the other hand, Airbus delivered 303 commercial planes so far this year.
 
In its second quarter of 2014, Boeing delivered 181 commercial airplanes, approximately 7.1% higher than the year-ago number. During the quarter, the Next Generation 737 model proved yet again its unfailing popularity, delivering 124 airplanes, followed by its 787 model with 30 deliveries. In the year-earlier period, the company had delivered 116 units of the 737 and 16 units of the 787 model. Boeing also delivered 24 777s during the second quarter 2014, while delivering 23 units in the year-ago period.
 
Meanwhile, Boeing’s deliveries in the defense and space business numbered 47 in the second quarter 2014 compared with 31 in the comparable period last year. The breakdown includes 15 Chinook helicopters, 12 F/A-18E/F and EA-18G fighter jets and 9 Apache helicopters, as well as 4 units of F-15, 2 C-17, 2 P-8, 2 Satellites (Government & Commercial) and 1 AEW&C.
 
In the Commercial Airplanes business, its 787 Dreamliner despite setbacks and technical snags remains a popular choice for major airlines, roughly doubling its deliveries in the second quarter of 2014. Commercial Airplanes ' 2014 deliveries are expected to be between 715 and 725 airplanes. This includes approximately 110 units of the 787.
 
The fourth generation of the 737 family – the 737 Max – is also a premier aircraft from Boeing’s stable and sees brisk demand in the single-aisle market for its fuel efficiency and low carbon dioxide emission.
 
The company seems to have retained its title of the world ' s largest airplane manufacturer given its impressive track record in both innovation and fuel efficiency. We expect Boeing to notch up record jet deliveries in the future driven by growing passenger traffic in the Asia-Pacific region.
 
Boeing currently has a Zacks Rank #2 (Buy). Other well-placed players in the aerospace and defense industry include Huntington Ingalls Industries, Inc. (HII-Free Report), General Dynamics Corp. (GD-Free Report) and Embraer SA (ERJ-Free Report), all carrying a rank similar to Boeing.

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