Huntington Ingalls Industries, Inc. (HII) is all set to release its third-quarter 2014 earnings on Nov 6, 2014. Last quarter, the company had posted a positive earnings surprise of 12.09%. In fact, the company has delivered positive earnings surprises in the trailing four quarters, with an average beat of 26.20%. Let's see how things are turning out for the third quarter.
Factors to Consider This Quarter
The largest military shipbuilder in the U.S., Huntington Ingalls is the prime industrial employer in Virginia. Huntington Ingalls, originally an affiliate of Northrop Grumman Corp. (NOC), was spun off in Mar 2011. The company seems to be more protected than other defense contractors from budget cuts as the U.S. defense department is expanding its fleet of submarines and destroyers and introducing a new version of aircraft carriers, with emphasis on the Asian-Pacific region.
During the third quarter, the company won some small-sized contracts. It won an affordability design contract for $23.5 million for early industry involvement to cut the construction and life-cycle cost for the amphibious assault ship LHA 8.
In Aug 2014, a Huntington Ingalls unit, AMSEC LLC, won two navy contracts for technical and logistical support services, along with material kitting services, for U.S. Navy LCC 19-class Amphibious Command ships. A total of three contracts were given for these services with a combined ceiling value of $96.8 million. AMSEC was also given the initial delivery order worth $1.2 million.
Its Newport News Shipbuilding unit received a $49.6 million contract to commence planning for work on the nuclear-powered aircraft carrier USS George Washington (CVN 73).
Recently, the shipbuilder also made some share friendly moves. Huntington Ingalls doubled its quarterly cash dividend to 40 cents a share. Additionally, the company's board of directors boosted its share repurchase program from $300 million to $600 million and extended the program's deadline from Oct 31, 2017 to Oct 31, 2019.
However, we are somewhat skeptical about whether these small ticket programs will be enough to beat the Street expectations on its third quarter earnings call. Sequestration still lurks over these defense companies and Huntington Ingalls is not completely immune to it.
Earnings Whispers
Our proven model does not conclusively show that Huntington Ingalls is likely to beat earnings this quarter. That 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.
Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is -6.49%. This is because the Most Accurate estimate is at $1.73 per share while the Zacks Consensus Estimate is at $1.85 per share.
Zacks Rank: Huntington Ingalls' Zacks Rank #3 when combined with a negative ESP makes surprise prediction difficult.
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Other Earnings Releases
General Dynamics Corp. (GD) reported third-quarter 2014 earnings of $2.05 per share that surpassed the Zacks Consensus Estimate by 7.3%. Earnings also increased 11.4% from the prior-year level, backed by improved operating margins. The company is one of the two contractors equipped to build nuclear-powered submarines in the U.S. with the other being Huntington Ingalls.
The Boeing Company (BA) delivered upbeat third-quarter 2014 results on robust deliveries. The company reported adjusted third-quarter 2014 earnings of $2.14 per share, beating the Zacks Consensus Estimate by 9.2%. The quarterly number rose an impressive 18.9% from $1.80 per share a year ago.
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