Defense giant Northrop Grumman Corporation NOC is scheduled to release fourth-quarter and full-year 2016 results on Jan 26, before the opening bell.
In the prior quarter, the company reported a positive earnings surprise of 7.47%. Notably, Northrop Grumman outperformed the Zacks Consensus Estimate in the trailing four quarters, the average positive surprise being 8.29%.
Let’s see how things are shaping up at the company prior to the announcement.
Why a Likely Positive Surprise?
Our proven model shows that Northrop Grumman is likely to beat earnings because it has the perfect combination of two key ingredients.
Zacks ESP: Northrop Grumman has an Earnings ESP of +0.80%. That is because while the Most Accurate estimate is pegged at $2.51, the Zacks Consensus Estimate is lower at $2.49. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Northrop Grumman currently carries a Zacks Rank #2 (Buy).
Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.
The company’s Zacks Rank #2 and positive ESP make us reasonably confident of an earnings beat.
Northrop Grumman Corp. Price and EPS Surprise
Northrop Grumman Corp. Price and EPS Surprise | Northrop Grumman Corp. Quote
What is Driving the Better-than-Expected Earnings?
Being one of the largest U.S. defense contractors, Northrop Grumman has a strong presence in the U.S. Air Force, Space and Cyber Security programs. The company’s product line is well positioned in high-priority categories, such as defense electronics, unmanned aircraft and missile defense.
For profit maximization, the company enjoys a rich opportunity set that includes programs like the T-X trainer, Joint STARS recapitalization, Ground-Based Strategic Deterrent, SABR radar, GPS III, MQ-25 and a number of other international opportunities.
In Jul 2016, management at Northrop Grumman resolved the IRS examination of its 2007– 2011 tax returns. As a result, its third-quarter 2016 income tax expenses were reduced by $42 million and a similar reduction can be expected in the yet-to-be-reported quarter as well. In terms of cash flow, management expects to witness a strong performance.
With respect to guidance, the company raised its 2016 revenue expectations to the range of $23.9–$24.1 billion, from the previous $23.5–$24.0 billion. Northrop Grumman also raised its guidance for diluted earnings per share to the band of $11.55–$11.75 from the prior projection of $10.75–$11.00.