Will Raytheon (RTN) Beat Earnings Estimates Again? - Analyst Blog

Raytheon Co. RTN will release its first quarter 2014 financial results before the market bell on Apr 24, 2014. This aerospace and defense operator registered positive earnings surprises in the last four quarters. We expect the company to keep the surprise streak alive this quarter as well.

Why a Likely Positive Surprise?

Our proven model shows that Raytheon is likely to beat earnings because it has the right combination of two key ingredients. A stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1, 2 or 3 for this to happen. This is the case here.

Positive Zacks ESP:  This is because the Most Accurate estimate stands at $1.79 while the Zacks Consensus Estimate is $1.76, resulting in +1.71% ESP. This is a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank #2 (Buy): Raytheon's Zacks Rank #2 combined with a positive ESP increases the possibility of an earnings beat. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

What is Driving the Better-than-Expected Earnings?

The non-platform centric focus of the company and investment in technological progress have ensured a steady performance for this defense behemoth. In spite of sequestration, Raytheon has managed to earn contracts from the U.S. Department of Defense on the strength of its diversified portfolio.

In addition, revenues generated from international customers will allow the company to cushion the negative impact of domestic defense budget cuts. Contributions from foreign defense contracts are expected to touch 30% total revenues in 2014, exceeding the 2013 level of 27%.

Raytheon aims to achieve total bookings of nearly $23.5 billion in 2014. Orders coming in from 80 countries from across the world will help Raytheon to meet this target.

Other Stocks to Consider

Here are some other companies tied to the Aerospace and Defense industry worth considering on the basis of our model, which shows that they have the right combination of elements to post an earnings beat this quarter.

Alaska Air Group, Inc. ALK has an earnings ESP of +7.14% and carries a Zacks Rank #1 (Strong Buy).

Northrop Grumman Corporation NOC has an earnings ESP of +0.47% and carries a Zacks Rank #2 (Buy).

Wesco Aircraft Holdings, Inc. WAIR has an earnings ESP of +3.03% and carries a Zacks Rank #3 (Hold).