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Will Segmental Performance Aid General Dynamics (GD) Q4 Earnings?

Zacks Equity Research
·5-min read

General Dynamics Corporation GD is slated to release fourth-quarter 2020 results on Jan 27, before the opening bell.

A poor show by the company’s Aerospace Unit might have been a point of concern in the to-be-reported quarter. However, improved performance from the company’s other segments is likely to have positively impacted the upcoming results.

Let’s take a detailed look at the factors influencing General Dynamics’ fourth-quarter performance.

Will Aeronautics Unit Take a Hit Again?

Due to the fairly low aircraft demand, courtesy of the COVID-19 pandemic’s impact on commercial aerospace, General Dynamics’ Aerospace segment has been suffering. Notably, the unit experienced significant disruptions in its production and delivery schedules due to prolonged COVID-19-induced business restrictions and supply-chain issues.

Similar trends are expected to have affected this unit’s performance in the fourth quarter as well. Consequently, the Zacks Consensus Estimate for this unit’s revenues stands at $2,744 million, indicating a 6.3% decline from the prior-year quarter’s reported figure.

Other Segments to Aid

From a positive viewpoint, the company witnessed solid growth in its Combat Systems, Mission and Marine Systems segment in the first three quarters of 2020. This was probably because the defense business of the nation remained cushioned to a large extent, backed by government support. To this end, we expect the fourth-quarter results to reflect similar trends.

The company’s Marine Systems unit is expected to have witnessed revenue growth, as General Dynamics continues to foresee expanding demand for submarines, surface combat, and support ships, and other overhaul work. Its Combat Systems unit is also estimated to have achieved a top-line improvement in the soon-to-be-reported quarter, with the company witnessing a growing demand for its Stryker vehicles and munitions.

In line with this, the Zacks Consensus Estimate for General Dynamics’ Combat segment’s revenues in the fourth quarter is pegged at $1,801 million, implying a 5% rise from revenues reported in the year-ago quarter. The Zacks Consensus Estimate for its Marine segment and Mission segment’s revenues implies a 0.8% and an 8.2% rise, respectively, from revenues reported in the year-ago quarter.

Q4 Backlog

General Dynamics has been witnessing a steady flow of orders from both Pentagon and its foreign allies, courtesy of the demand for its varied range of military offerings. Notably, during the fourth quarter, it secured a handful of multi-billion-dollar contracts, the largest one being a $9.5-billion contract for the construction and test of the Columbia class ships. This is expected to get reflected in the company's backlog count for the quarter under review.

Earnings and Revenue Estimates

Projected revenue growth in three of the company’s business segments, except the Aerospace segment, is likely to have aided its overall top line in the to-be-reported quarter. The Zacks Consensus Estimate for the company’s fourth-quarter revenues stands at $10.85 billion, indicating a 0.8% rise from the year-earlier quarter’s reported figure.

The estimated top-line growth along with its resilient portfolio makes us confident about the company’s ability to generate bottom-line growth. The Zacks Consensus Estimate for the defense giant’s fourth-quarter earnings is pegged at $3.55 per share, indicating an increase of 1.1% from the prior-year quarter's reported number.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for General Dynamics this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat but this is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Dynamics has an Earnings ESP of -0.49% and a Zacks Rank #4 (Sell).

General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation Price and EPS Surprise
General Dynamics Corporation Price and EPS Surprise

General Dynamics Corporation price-eps-surprise | General Dynamics Corporation Quote

Stocks to Consider

Here are some defense companies you may want to consider, as these have the right combination of elements to post an earnings beat in their upcoming releases:

Raytheon Technologies RTX has an Earnings ESP of +11.47% and a Zacks Rank #3. The company will announce fourth-quarter 2020 earnings on Jan 26. You can see the complete list of today’s Zacks #1 Rank stocks here.

Teledyne Technologies TDY has an Earnings ESP of +5.86% and a Zacks Rank #3. The company will announce fourth-quarter 2020 earnings on Jan 27.

Leidos Holdings LDOS has an Earnings ESP of +6.79% and a Zacks Rank #2. The company will announce fourth-quarter 2020 earnings on Feb 23.

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