Defense Stocks Reporting Q4 Earnings Jan. 24: GD, HXL

The fourth-quarter earnings season has gathered steam with 53 S&P 500 members having reported their quarterly numbers as of Jan 19. So far, the results reflect a positive view of corporate earnings, with tax cuts driving earnings estimates. As the reporting cycle gets underway, the earnings scenario will most likely show more favorable trends.

Notably, annual earnings for the 53 index members that have released their Q4 result have improved 11.7%, while revenues increased 7.5%. The beat ratio for the bottom line was 81.1%, while that for top line was 75.5%, as of Jan 19.

Coming to the Aerospace-Defense industry, none of the stocks have reported their Q4 results so far. However, considering the inherent stability of this industry, projections for the Aerospace sector (one of the 16 Zacks sector), which constitutes the Aerospace-Defense industry, hint at an impressive quarter, when compared to its Q3 performance.

Evidently, the sector’s earnings are likely to improve 6.6% on 5.7% higher revenues in the fourth quarter. In the third quarter earnings for this sector declined 6.8% on 4.4% sales growth. For more details on quarterly releases, you can go through our latest Earnings Preview.

Defense stocks remained on a growth trajectory in the fourth quarter, courtesy of the various defense policy initiatives adopted by President Trump. A steady flow of contracts from Pentagon also provided an impetus to the stocks. With Trump strongly opposing the budget sequestration imposed by his predecessor, defense stocks are likely to gain traction in the coming days. Moreover, growing international market for weaponries with more developing nations expanding their defense spending is also likely to fuel the industry’s growth.

With almost 262 companies (81 S&P 500 members) slated to report their Q4 results this week, let’s find out where the following defense stocks stand before their release of quarterly numbers on Jan 24.

General Dynamics Corp. GD delivered a positive earnings surprise of 3.70% in the last quarter. Notably, the company outperformed the Zacks Consensus Estimate in three of the trailing four quarters, with an average beat of 3.44%.

Order flow form Pentagon as well as foreign allies of the United States generally boost quarterly sales of defense bellwethers and General Dynamics is no exception. In this line, the Zacks Consensus Estimate for the company’s fourth-quarter sales is $8.4 billion, reflecting 2.5% year-over-year growth.

However, unfavorable margins may impact its Aerospace segment’s results. Evidently, fourth-quarter consensus estimate for the segment’s revenues is pegged at $1,930 million, reflecting a year-over-year decline of 13.2%. Segment wise, other three business units of General Dynamics indicate positive annual sales growth, considering the respective Zacks Consensus estimate.

Per our proven model, a stock is likely to beat earnings estimate if it has a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Impressively, General Dynamics constitutes that right combination.

Notably, the company has an Earnings ESP of +0.19%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Dynamics currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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 (read more: Can Contract Wins Drive General Dynamics' Q4 Earnings?).

General Dynamics Corporation Price and EPS Surprise

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

Hexcel Corporation HXL posted a positive earnings surprise of 2.90% in the prior quarter. However, the company has underperformed the Zacks Consensus Estimate in two of the trailing four quarters, the average negative surprise being 0.38%.

The Earnings ESP for Hexcel Corp. is -3.74%, because the Most Accurate estimate of 67 cents per share is pegged lower than the Zacks Consensus Estimate of 70 cents. The company carries a Zacks Rank #4.

Therefore, our proven model does not conclusively show that Hexcel Corp. is likely to beat earnings this quarter.

Hexcel Corporation Price and EPS Surprise

Hexcel Corporation Price and EPS Surprise | Hexcel Corporation Quote

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