Q3 Defense Earnings Scorecard

Third-quarter earnings announcement season is well underway, but Wall Street sure isn’t cheering. We’ve seen several solid financial reports and earnings beats—and yet the market continues to act like a petulant child.

The volatility this month can be attributed to several factors, mainly the slowdown in global economic growth, the plunge in energy prices and deflationary fears surrounding the strong U.S. dollar. And high frequency trading systems have only exacerbated investors’ mood.

In this type of environment, the worst thing you can do is act first (sell) and think later. I firmly believe that the market will make a strong bounce in the coming days and weeks, and that will mostly be driven by solid earnings and sales reports. So stay focused and don’t get too caught up in the market’s manic mood.

Now, before we get to the Aerospace & Defense companies on tap to post their third-quarter financial results next week, let’s take a closer look at how the banks fared this week:

  Symbol Earnings Estimate Actual Result Surprise Portfolio Grader Rating
Wells Fargo WFC $1.02 $1.02 0% A
American Express AXP $1.36 $1.40 2.94% C
JPMorgan JPM $1.38 $1.36 -1.45% C
Citigroup C $1.12 $1.07 -4.46% D
Bank of America BAC ($0.09) ($0.01) 800% C
BB&T BBT $0.71 $0.71 0% C
Fifth Third Bancorp FITB $0.43 $0.43 0% C
Goldman Sachs GS $3.21 $4.57 42.37% C

Now, onward to aerospace and defense companies. It’s been a banner year for most companies in this sector. With all the geopolitical uncertainty in the world—Russia and the Ukraine, ISIS and Iraq—aerospace and defense companies’ services have been in hot demand.

In addition, these companies have also garnered the attention of yield-hungry investors, as most have substantial dividend yields between 2% and 3%. I’m particularly fond of dividend-paying stocks, as they pack the one-two punch of security and profit opportunity.

When you purchase a dividend stock, you will receive a steady stream of income from your investment. A company’s willingness to pay dividends is a strong indicator that the company is on solid ground and backed by strong fundaments.

These are some of the reasons why I’ve recommended several aerospace and defense companies this year. And right now, I want to help you weed out the losers in this sector so you can focus on the winners.

Earnings Spotlight: Honeywell International

Tomorrow morning, Honeywell International (HON) will post third-quarter financial results. This company’s mechanical and electrical products are used in commercial and defense aircraft platforms—yet, demand appears to be slowing down.

In the second quarter, Honeywell announced that revenues increased just 6% year-over-year, rising to $10.25 million. Earnings per share increased just 8% to $1.38. And fiscal year 2014 guidance projects a 3% to 4% increase in sales and a 10% to 12% increase in earnings per share.

As a result, it’s not surprising that Honeywell has fallen from an overall B-rating in May to a C-rating over the bumpy summer months. Or that the company is only expected to report annual earnings growth of 13.7% and annual sales growth of 4.1% in the third quarter. The consensus estimate is for $1.41 per share on $10.06 billion in sales.

Honeywell does offer a 2% dividend yield, but given its slowing earnings and sales, I think there are better dividend plays out there.

Aerospace & Defense Earnings Scorecard

GenCorp Inc. (GY) reported third-quarter financial results on Monday. The company posted a $0.17 earnings per share loss on $419.5 million in sales. This is down from $2.39 earnings per share and $367.5 million in sales in Q3 2013. So there is a very good reason why GY earns a D-rating from PortfolioGrader. Avoid.

Upcoming Aerospace & Defense Calendar

Tuesday, October 21

United Technologies Corp. (UTX)—Watch out for this D-rated company. While earnings and sales are expected to grow 16.7% and 4.5%, respectively, the risk far outweighs the reward right now.

Lockheed Martin (LMT)—This defense contractor is looking better than ever, as its boosted its business with key U.S. allies to offset domestic defense cuts. Shares are up more than 20% year-to-date, and I’m looking for another nice pop when LMT beats estimates for the fifth-straight quarter.

Wednesday, October 22

Northrop Grumman Corp. (NOC)—As one of the world’s largest builders of naval vessels, NOC brings in nearly $25 billion in annual sales. The company has also been actively buying back its stock, which should prop up earnings for the next several quarters. Plus, it pays a 2.3% dividend yield.

Boeing (BA)—This aerospace and defense giant has posted quarter-after-quarter of earnings surprises and a growing order backlog. But the company has recently taken some unexpected hits, and the stock has fallen to a C rating. I’ve advised my subscribers to sell due to rising volatility.

Thursday, October 23

Raytheon (RTN)—This defense contractor has boosted its international business, recently receiving contracts from South Korea and Saudi Arabia. It is expected to post 6.6% earnings growth in the most recent quarter, and it dishes out a fat 2.5% dividend yield.

Up Next…

In the October 21 edition of our Market 360 earnings series, we’ll turn our attention to the headline-grabbing Internet stocks. The Alibaba IPO alone was red-hot, capturing the world’s and Wall Street’s attention for a solid week. But what’s next for the sector? And are there viable investments in Internet stocks today?

Next week, I’ll provide answers to these questions, as some of the biggest names in the industry will be reporting financial results, including Yahoo (Oct. 21), Amazon (Oct. 23) and Baidu (late October). So be sure to tune back in on October 21 when we’ll preview these upcoming reports.


Louis Navellier

Louis Navellier

*Please note that earnings dates can change. All expected earnings dates mentioned are accurate as of the publishing date.

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