After Lockheed Martin’s strong results last week, a number of defense companies announced their earnings this week. Raytheon Technologies (RTX) reported mixed results early Tuesday, after which General Dynamics (GD) defeated Wednesday. Duration Northrop Grumman (NOC), Booz Allen Hamilton (BAH) and L3Harris Technologies (LHX) will be announced in the following days. RTX stock fell on Tuesday. Meanwhile, shares of GD, NOC, BAH and LHX were relatively unchanged before their gains.
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Defense stocks have outperformed the market overall this year, as the US spent billions of dollars supporting Ukraine following the Russian invasion in February. As the war in Ukraine escalated, President Vladimir Putin publicly warned in late September that he was willing to resort to nuclear power. Meanwhile, tensions between the US and China escalated over Taiwan’s sovereignty. Increasing focus on national and international security is driving countries to strengthen their military posture, creating demand for US defense contractors.
Seaport Global analyst Richard Safran wrote in a research note last week that third-quarter government spending rose 20 to 25% year-over-year. It expects average third-quarter revenue growth for major defense firms to be between 4% and 5%, and is “leaning positively” into the space ahead of earnings reports. Safran noted that companies providing a 2023 outlook could potentially beat Wall Street’s low or modest expectations.
Some shares of defense contractors are getting ahead of their announcements. However, buying stocks before earnings results is always risky. A lack of earnings or income can cause unexpected price fluctuations. Meanwhile, the market has confirmed a new uptrend, but the underlying economic and market volatility gives investors good reason to remain cautious.
Raytheon Earnings
Raytheon Technologies, maker of the Stinger and Javelin missiles, comes from slowing earnings and revenue growth for five consecutive quarters. Wall Street expects this streak to continue for third-quarter earnings results Tuesday morning.
Expectations: Adjusted earnings are expected to decline 9.5% to $1.14 per share, while revenue is expected to increase 6.2% to $17.23 billion.
Results: Raytheon’s earnings fell 4.6% to $16.95 billion, up 4.6%, to $1.21 per share, down 3.9%.
Sales of the Collins Aerospace subsidiary increased 11% year over year to $5.1 billion, driven by a 25% increase in commercial aftermarket sales. And Pratt & Whitney segment sales rose 14% to $5.38 billion, driven by higher commercial equipment and aftermarket revenue. However, Raytheon Missiles and Defense sales fell 6% to $3.7 billion as the company continued to face supply chain constraints for its Ground War, Air Defense and Naval Force programs. Sales of the Raytheon Intelligence & Space segment fell 3% as Raytheon divested its Global Education & Services business.
Raytheon also lowered its fiscal 2022 revenue forecast from $67.75 billion to $68.75 billion to $67 billion to $67.3 billion. And it lowered the adjusted EPS view to $4.80 from $4.70 to $4.80 from the previous $4.60.
RTX stock has been consolidating since a failed break from a flat bottom in April. Shares fell more than 1.5% on Tuesday after RTX rose more than 1.3% on Monday.
General Dynamics Gains
General Dynamics is releasing the results Wednesday morning. The company manufactures various business jets, combat vehicles, ships, submarines, communications and weapons systems. Its portfolio includes technology that powers warplanes such as Gulfstream jets, AbramsX tanks and the F/A-18 Super Hornet.
Expectations: Wall Street sees General Dynamics earnings rise 3.7% to $9.9 billion, a revenue increase of 3.7%, to $3.15 per share, up 2.6%.
Results: General Dynamics earnings increased to $3.26 per share and revenue increased to $10 billion.
General Dynamics reported strong demand for Aerospace, Marine and Combat Systems, each seeing year-over-year revenue increases. Aerospace segment sales led growth, increasing 13.6% to more than $2.3 billion. General Dynamics’ delivery backlog increased by $88.8 billion during the quarter, bringing the total to $125.8 billion.
GD stock is dealing with a buy point at 244.18. The current flat bottom pattern formed within a larger, seven-month consolidation. IBD MarketSmith draws a standard entry at 255.09. The relative strength of the stock hit new highs before the results.
GD shares rose premarket on Wednesday after the quarterly report. GD stock rose 0.8% before the announcement on Tuesday.
Northrop Grumman Earnings
Northrop Grumman provides counter artillery, radars and surveillance aircraft and systems. It also manufactures F-35 fighter jets with Lockheed Martin, one of the company’s largest revenue generators. Northrop’s earnings and revenues have fallen over the past three quarters.
Expectations: Analysts predicted for Thursday’s results that Northrop Grumman’s adjusted earnings would fall 7.8% to $6.11 per share, while revenue would increase 4.7% to $4.68 billion.
NOC stock emerged from a double-bottom bottom in early August and has put pressure on new recent highs. His Relative Strength Rating is at 95 out of a possible 99 of his report.
Booz Allen Hamilton Earnings
Cybersecurity, data and technology consulting firm Booz Allen Hamilton reported the results Friday morning. The relative strength of Booz Allen stock is at a new high until its report.
Expectations: Analysts expect earnings to fall from 10% to $1.13 per share, while revenue is up 7% to $2.26 billion.
BAH stock is trading in a buy zone after breaking from a flat bottom. Shares broke out last Friday past the buy point of 99.41. The buy zone stretches to 104.38. BAH reports on Friday.
L3Harris Technologies Earnings
Intelligence and surveillance equipment and technology provider L3Harris reported earnings Friday morning. The company manufactures a large number of marine, defense and commercial aerospace vehicles. As well as space systems, mission networks, and tactical and broadband communications. L3Harris’ earnings and revenue have fallen over the past two quarters, but analysts are predicting a rebound for the third quarter.
Expectations: Wall Street forecasts L3Harris’ earnings to rise 4.2% to $4.4 billion, up 4.2% to $3.39 per share, up 5.6%.
LHX stock is climbing to the right of a cup bottom ahead of Friday morning results. Its relative strength is at a new high. The shares are about 12% below a standard buy point of 279.81. Aggressive traders can make an early entry around $248.63, but those who decide to buy before their earnings should be quite cautious.
You can follow Harrison Miller for more stock news and updates on Twitter. @IBD_Harrison
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