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What's in the Cards for Boeing (BA) this Earnings Season?

Leading commercial aircraft manufacturer, The Boeing Co. BA, is set to release second-quarter 2017 results before the opening bell on Jul 26.

The company delivered a positive earnings surprise of 5.24% in the preceding quarter. Moreover, it surpassed the Zacks Consensus Estimate in the last four quarters, with an average beat of 23.69%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Boeing’s second-quarter deliveries showed an 8% year over year decline in commercial shipments. However, defense shipments were in line with the year-ago figure. Additionally, the company cited lower demand for its 737, 777, 787 and 767 jets that led to year-over-year decline in commercial deliveries of 183 airplanes, during the quarter. However, the numbers reflected 8.3% growth, sequentially.

Delivery of the single-aisle 737 jet declined to 123 from 127 a year ago. This reduction was due to Boeing’s greater involvement in the production of a newer version of its most popular plane, the 737 MAX. Also, shipments of the 777 and 787 Dreamliners were 21 and 33 compared with 28 and 38 in the year-ago period, respectively. Boeing delivered three 767 jets compared with four in the year-ago quarter. However, shipments of 747 were three compared with two in the year-ago period.

In the defense and space business, Boeing’s deliveries totaled to 45 in the second quarter, in line with the year-ago figure. Nonetheless, the reported figure was up from 42 in the preceding quarter.

In spite of these circumstances, Boeing still enjoys a steady flow of contracts for both its commercial and defense products. Evidently, during the quarter, Lion Group has committed to buy 50 737 Max 10 jets from the company for $6.24 billion. Also, Boeing signed a memorandum of understanding (MOU) with SpiceJet for 40 737 MAX airplanes worth $4.7 billion. Another MOU worth $2.5 billion was signed with Tibet Financial Leasing for 20 737 MAX airplanes. Apart from this, it clinched an order from AerCap for 30 787-9 Dreamliners, valued at $8.1 billion.

Notably, within the defense business, Boeing secured a modification contract worth $1.1 billion in the second quarter to procure Redesigned Kill Vehicle (RKV) development. In fact, with this modification the total cumulative face value of the contract reaches $5.8 billion from $4.7 billion.

The company also won a handful of other notable contracts like the $488.1 million modification foreign military sales (FMS) deal to remanufacture 38 AH-64 Apache aircraft and procure three Longbow crew trainers and associated spares, the $475 million contract to provide intelligence, surveillance and reconnaissance (ISR) services in order to support the Mid-Endurance Unmanned Aircraft Systems (MEUAS) program, and the $410.9 million modification FMS deal for providing 38 Apache aircraft three Longbow crew trainers and associated spares. We expect all these contracts to contribute significantly to the company’s top line in the to-be-reported quarter.

For the second quarter, while the Zacks Consensus Estimate for earnings reflects a year-over-year increase of 626.1%, the same for revenues is pegged at $22.97 billion resulting into a 7.2% decline.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Boeing this 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. This is not the case here, as you will see below:

Zacks ESP: Boeing has an Earnings ESP of -0.43% as the Most Accurate estimate is $2.31, while the Zacks Consensus Estimate is pegged a little higher at $2.32. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter

Zacks Rank: Boeing’s carries Zacks Rank #2, which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

Note that we caution against stocks with Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement.

Stocks that Warrant a Look

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

Embraer SA ERJ is expected to report second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +6.25% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leidos Holdings, Inc. LDOS is scheduled to report second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +1.30% and a Zacks Rank #3.

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

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