Huntington Ingalls Industries, Inc. HII is set to report first-quarter 2018 results on May 3, before the market opens.

In the last reported quarter, this military shipbuilder delivered a positive earnings surprise of 6.51%. Coming to expectations for the first quarter of 2018, while higher aircraft carriers’ volume is likely to keep the Newport News segment on its toe, tax reform is anticipated to boost earnings growth.

Let’s discuss the factors influencing Huntington Ingalls’ quarterly results, in brief.

Newport News – A Key Catalyst

Huntington Ingalls’ Newport News is the nation’s sole designer, builder and refueler of nuclear-powered aircraft carriers. This division, which generates more than 50% of the company’s total revenues, has been underperforming for the last few years. However, in the past couple of reported quarters, this segment’s top line has rebounded to a positive growth trajectory.

In particular, higher volumes in aircraft carriers and Navy nuclear support services have been boosting the top line at this segment. We expect first-quarter results to reflect similar trends, which in turn is likely to bolster the segment’s quarterly revenues.  In line with this, the Zacks Consensus Estimate for Newport News unit’s first-quarter revenues stands at $1,012 million, reflecting an annual improvement of 4.2%.

Tax Reform: A Boon

Management at Huntington Ingalls believes that the recent adoption of the Tax Cuts and Jobs Act by U.S. administration has created an opportunity for the company to increase its investments. Per the company, the latest Tax Reform will allow Huntington Ingalls to push up its investment in Shipbuilding business by $300 million. These investments, in turn, will expand operational capacity at the Ingalls segment and increase investment in digital tools to improve operational efficiencies at Newport News. We believe this will get translated into improved earnings growth for the company, which is expected to be partially reflected in the upcoming quarterly result.

In line with this, the Zacks Consensus Estimate for Huntington Ingalls’ first-quarter earnings of $4.07, represents an annual improvement of 117.7%.

Dearth of Order in Q1: A Killjoy?

A steady inflow of orders from Pentagon has always provided an impetus to Huntington Ingalls’ results. However, in the first quarter, the company won not many notable contracts. Nevertheless, considering solid contributions from Camber acquisition along with robust sales volume as well as Navy nuclear support services boom, overall sales growth expectation for Huntington Ingalls’ first quarter remains positive. In sync with this, the Zacks Consensus Estimate for revenues is pegged at $1.76 billion, implying a 2.4% year-over-year increase.

Here’s What Our Quantitative Model Predicts

Huntington Ingalls does not possess the right combination of two main ingredients — a positive Earnings ESP  and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

Zacks ESP: Huntington Ingalls 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 carries a Zacks Rank #3, which along with a 0.00% ESP makes surprise prediction difficult.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

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

Curtiss-Wright Corporation CW is expected to report first-quarter 2018 results on May 2. The company has an Earnings ESP of +3.78% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Air Industries Group AIRI is expected to report first-quarter results on May 29. The company has an Earnings ESP of +100.00% and a Zacks Rank #3.

Recent Peer Release

General Dynamics Corporation GD reported first-quarter 2018 earnings from continuing operations of $2.65 per share, beating the Zacks Consensus Estimate of $2.47 by 7.3%. 

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