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General Dynamics (GD) Q2 Earnings: Is a Beat in the Cards?

Defense behemoth, General Dynamics Corporation GD is scheduled to release second-quarter 2017 results on Jul 26, before the opening bell.

In the prior quarter, the company reported a positive earnings surprise of 6.90%. It is worth noting that General Dynamics has outperformed the Zacks Consensus Estimate in all the trailing four quarters, the average positive surprise being 5.20%.

Let’s see how things are shaping up for the company prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that General Dynamics is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP:  General Dynamics has an Earnings ESP of +0.41%. This is because the Most Accurate estimate stands at $2.44, higher than the Zacks Consensus Estimate of $2.43. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Dynamics carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating earnings estimates.

Notably, 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.

Meanwhile, General Dynamics’ combination of a Zacks Rank #3 and +0.41% ESP makes us reasonably certain of an earnings beat.

What’s Driving the Better-Than Expected Earnings?

General Dynamics derives its profits from a broad portfolio of products and services along with a wide customer base. Moreover, being one of the only two contractors in the world equipped to build nuclear-powered submarines, the company boasts a strong growth momentum in the U.S. as well as overseas.

In the second quarter, General Dynamics secured a handful of big contracts from the Pentagon. These include the $250 million deal to modify, test, train and sustain the Prophet Signals Intelligence (SIGINT) and electronic warfare (EW) system, and the $105 million deal for the execution of USS Makin Island (LHD 8) fiscal 2017 dry-docking phased maintenance availability. The company also won a $203 million modification contract to increase the design support requirements for Columbia-class submarines in the yet-to-be reported quarter.

Coming to expectations regarding the second-quarter results, General Dynamics witnessed improved activity levels in Europe and China at the onset of the quarter. In particular, an uptick was observed in the demand for large-cabin aircraft in these markets. This would surely benefit the company’s growth trajectory and can be expected to get reflected in its upcoming results.

Earlier, in the first quarter, the company almost completed the transition from engineering and prototype production on its two large international vehicle programs for Canada, the Mideast and the U.K. As per management’s projections, these programs must have entered full production by now and thereby will likely boost the company’s international expansion in the second quarter and beyond.

For the to-be-reported quarter, the Zacks Consensus Estimate for earnings stands at $2.43 per share, down 0.27% year over year, while the revenue estimate is pegged at $7.80 billion, implying a 1.82% year-over-year improvement.

Other Stocks that Warrant a Look

Here are some other defense companies 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.

Huntington Ingalls Industries, Inc. HII is expected to report second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +4.96% and a Zacks Rank #2.

Raytheon Company RTN is expected to report second-quarter 2017 results on Jul 27. The company has an Earnings ESP of +0.58% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here.

Spirit Aerosystems Holdings, Inc. SPR is expected to report second-quarter 2017 results on Aug 2. The company has an Earnings ESP of +1.65% and a Zacks Rank #3.

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General Dynamics Corporation (GD): Free Stock Analysis Report
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Raytheon Company (RTN): Free Stock Analysis Report
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