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What Awaits Raytheon Technologies (RTX) in Q1 Earnings?

Zacks Equity Research

Raytheon Technologies Corp. RTX is set to release first-quarter 2020 results on May 7, before market open.
 
The Zacks Consensus Estimate for the first-quarter earnings of $1.11 has remained stable over the past seven days.

Let’s see how things have shaped up prior to this announcement.

Q1 Expectations Post Merger
 

On Apr 3, 2020, Raytheon Company completed its merger with United Technologies and together they formed Raytheon Technologies. Currently, the Zacks Consensus Estimate for the new company’s earnings is pegged at $1.11 on revenues of $18.14 billion, indicating 41.8% and 1.3% decline from the respective year-ago quarter numbers.

Raytheon Technologies Corporation Price

Raytheon Technologies Corporation Price

Raytheon Technologies Corporation price | Raytheon Technologies Corporation Quote

Factors to Note

Positive synergies from the merger are unlikely to have been realized in the soon-to-be-reported quarter as it was closed after the quarter ended. However, in the process, merger related costs were incurred, which, in turn, might have weighed on the combined company’s quarterly earnings.

Escalating cost of sales has been a persistent concern for United Technologies in the recent past on account of higher tariffs. In addition, restructuring costs have also been rising. Together, these raised expenses are likely to have adversely impacted the company’s margin and thereby earnings in the first quarter.

Raytheon suffered from lack of big contracts during the first quarter of 2020. This, in turn, might have hurt the combined company’s quarterly backlog figures.

Meanwhile, the novel coronavirus outbreak resulted in strict business and travel restrictions across the globe, which, in turn, must have delayed delivery of products of both companies. This is likely to have dragged down top line of the combined company.

Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Raytheon Technologies this time around. 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. That’s not the case here.You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Raytheon Technologies has an Earnings ESP of 0.00%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: The company currently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Here are some defense companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this reporting cycle.

Spirit Aerosystems Holdings, Inc. SPR has an Earnings ESP of +18.35% and a Zacks Rank #3. It is set to release results on May 6.

Huntington Ingalls Industries HII has an Earnings ESP of +1.79% and a Zacks Rank #3. It is set to release results on May 7.

A Recent Defense Release

Lockheed Martin Corp. LMT reported first-quarter 2020 earnings of $6.08 per share, which surpassed the Zacks Consensus Estimate of $5.76 by 5.5%. The bottom line also improved 1.5% from the year-ago quarter’s $5.99.

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