Will Rockwell Collins (COL) Disappoint on Q3 Earnings? - Analyst Blog

Aviation electronics maker Rockwell Collins Inc. COL is slated to report third quarter fiscal 2015 results on Jul 24 before the opening bell. In the last reported quarter, the company’s earnings were on par with the Zacks Consensus Estimate. However, in the trailing four quarters, the stock posted an average positive surprise of 0.6%.

Let’s see how things are shaping up for this announcement.

Factors to Consider

Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. On expanding its business with Boeing (BA) late last year, the company had said that it expected fiscal 2015 revenues to rise to a band of $5.2 billion and $5.3 billion from $4.98 billion in fiscal 2014. Again, on the fiscal second quarter 2015 earnings call, it lifted its expectations to the high end of its earlier guided range of $5.2−$5.3 billion for fiscal 2015.

In the fiscal third quarter, Airbus selected Rockwell’s communications gear for the A320 and A330 aircraft families. Meanwhile, Rockwell and nine undisclosed airlines around the globe launched a trial program for a new tracking system that it says will allow carriers "to track aircraft in some of the most remote regions of the world.”

As far as investor-friendly moves are concerned, Rockwell Collins boosted its quarterly dividend by 10% in April. The dividend was paid on Jun 8, 2015, to shareholders of record at the close of business on May 19, 2015.

However, dependence on international sales, delays in funding authorizations by the U.S. government and higher exposure to fixed-price contracts raise concerns.

Earnings Whispers

Our proven model does not conclusively show that Rockwell Collins will beat earnings this season. This 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, as you will see below.

Zacks ESP: Rockwell Collins currently has a negative Earnings ESP. This is because the Most Accurate estimate stands at $1.30 while the Zacks Consensus Estimate is pegged higher at $1.31. This equates to a difference of -0.76%.

Zacks Rank: Rockwell Collins’ Zacks Rank #4 (Sell) when combined with a negative Earnings ESP makes an earnings beat difficult. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

L-3 Communications Holdings Inc. LLL with an Earnings ESP of +1.74% and a Zacks Rank #2. It is scheduled to report its second-quarter results on Jul 30.

General Dynamics Corp. GD with an Earnings ESP of +0.49% and a Zacks Rank #2. It will report its quarterly result on Jul 29.

Spirit AeroSystems Holdings, Inc. SPR with an Earnings ESP of +2.06% and a Zacks Rank #3. It will report its quarterly result on Jul 29.

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