So far, we have witnessed mixed reports this earnings season from prime defense contractors. While General Dynamics GD, Raytheon Technologies RTX and Northrop Grumman reported better-than-expected quarterly bottom line, jet giant, Boeing BA missed the Zacks Consensus Estimate.
Notably, the defense space has been witnessing a modest downside since the novel coronavirus started to spread worldwide. Coming to the companies’ performance in the second quarter, commercial aerospace players suffered the most as air travel demand remained substantially low, thereby dragging down projections for the ongoing earnings season.
Moreover, to maintain proper social distancing, a handful of defense manufacturers either shut down their production units for a few days or reduced production rate by employing fewer workforce.
No doubt this caused production inefficiencies, thereby dealing a blow to the industry’s margins. Deliveries of finished products were hampered owing to stringent travel restrictions, which are likely to have dragged down revenues and pushed up costs of storage.
Considering these, we remain a bit skeptical about the broader Aerospace sector, which constitutes defense stocks.
Aerospace sector Q2 earnings are expected to decline 69.5% year over year while revenues are projected to be 7.1% lower.
For more details on quarterly releases, you can go through the latest Earnings Preview.
Defense Stocks to Watch
Let's take a look at some defense companies that are scheduled to report earnings on Aug 4.
TransDigm Group Inc. TDG delivered a four-quarter average earnings surprise of 16.69%. The company’s third-quarter fiscal 2020 results are likely to reflect weak commercial aftermarket sales owing to decline in revenue passenger miles, courtesy of the COVID-19 impact.
Moreover, the prolonged grounding of Boeing’s (BA) 737 MAX and subsequent production rate cuts might have had an impact on the company’s performance in the to-be-reported quarter(read more: TransDigm Group to Report Q3 Earnings: What's in Store?).
According to the Zacks model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
TransDigm Group has an Earnings ESP of -6.88% and a Zacks Rank #4 (Sell). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Transdigm Group Incorporated Price and EPS Surprise
Transdigm Group Incorporated price-eps-surprise | Transdigm Group Incorporated Quote
Kratos Defense & Security Solutions KTOS has a four-quarter average earnings surprise of 18.67%. The company has been witnessing delays of certain supplier deliveries and reduction in demand from certain of its commercial aero and power customers. This in turn may have marred its growth in the second quarter of 2020.
Also certain program delays in recent times are expected to have pushed up its expenses and thereby impacted its bottom line.
The company currently has an Earnings ESP of 0.00% and a Zacks Rank #4 (read more:Kratos Defense to Post Q2 Earnings: What's in Store?)
Kratos Defense Security Solutions, Inc. Price and EPS Surprise
Kratos Defense Security Solutions, Inc. price-eps-surprise | Kratos Defense Security Solutions, Inc. Quote
Spirit AeroSystems Holdings, Inc. SPR has a four-quarter average negative earnings surprise of 4.60%. Its shipset deliveries may have tumbled in the second quarter, as both its major customers, Boeing (BA) and Airbus (EADSY), have been struggling financially due to the drastic impacts of the coronavirus pandemic.
The company projects incremental forward loss of approximately $70-$90 million from the 787 program in the second quarter. This in turn might have weighed on its quarterly earnings.
Currently, the company boasts an Earnings ESP of -13.43.and a Zacks Rank #4 (read more: What's in Store for Spirit AeroSystems' Q2 Earnings?).
Spirit Aerosystems Holdings, Inc. Price and EPS Surprise
Spirit Aerosystems Holdings, Inc. price-eps-surprise | Spirit Aerosystems Holdings, Inc. Quote
Leidos Holdings, Inc. LDOS has a four-quarter average earnings surprise of 6.65%. The defense sector has been largely resilient to coronavirus impact. With Leidos Holdings generating almost half of its revenues from the Defense Solutions segment, earlier won order growth must have boosted its second-quarter revenues.
To tackle COVID-19 crisis, Leidos Holdings has hired aggressively for enabling teleworking capabilities through hardware software and cloud-based service deployments. This might have pushed up its quarterly expenses.
The company currently hasan Earnings ESP of +0.11% and a Zacks Rank #3 (read more: What's in Store for Leidos Holdings in Q2 Earnings?).
Leidos Holdings, Inc. Price and EPS Surprise
Leidos Holdings, Inc. price-eps-surprise | Leidos Holdings, Inc. Quote
Breakout Biotech Stocks with Triple-Digit Profit Potential
The biotech sector is projected to surge beyond $775 billion by 2024 as scientists develop treatments for thousands of diseases. They’re also finding ways to edit the human genome to literally erase our vulnerability to these diseases.
Zacks has just released Century of Biology: 7 Biotech Stocks to Buy Right Now to help investors profit from 7 stocks poised for outperformance. Our recent biotech recommendations have produced gains of +50%, +83% and +164% in as little as 2 months. The stocks in this report could perform even better.
See these 7 breakthrough stocks now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
The Boeing Company (BA) : Free Stock Analysis Report
General Dynamics Corporation (GD) : Free Stock Analysis Report
Transdigm Group Incorporated (TDG) : Free Stock Analysis Report
Spirit Aerosystems Holdings, Inc. (SPR) : Free Stock Analysis Report
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
Kratos Defense Security Solutions, Inc. (KTOS) : Free Stock Analysis Report
Raytheon Technologies Corporation (RTX) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research