Boeing 737 Demand to Aid Spirit AeroSystems (SPR) Q3 Earnings?

Spirit AeroSystems Holdings, Inc. SPR, a designer and manufacturer of aerostructures for both commercial and defense aircraft, is set to release third-quarter 2017 results on Nov 1, before the opening bell.

We expect Fuselage Systems segment to primarily drive the company’s revenues in the third quarter. Moreover, the Memorandum of Understanding (MOU) that the company recently signed with The Boeing Company BA is expected to have a notable impact on Spirit AeroSystems’ quarterly results.

Let’s take a detailed look at the factors influencing Spirit AeroSystems’ quarterly results.

Fuselage Systems Unit – A Key Catalyst

Segment-wise, Fuselage Systems business unit that represent more than 50% of the company’s total sales continue to be a major growth driver. The third quarter is also poised to benefit from this unit.  Notably, improved demand for Boeing’s 737 program lead to the higher production deliveries for the 737 fleet. The solid 737 demand in the world market is expected to drive the company’s sales in this segment.

Notably, the Zacks Consensus Estimate for third-quarter sales is $912 million for the segment, reflecting year-over-year growth of 4.1%.

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise

 

Spirit Aerosystems Holdings, Inc. Price and EPS Surprise | Spirit Aerosystems Holdings, Inc. Quote

Is MOU With Boeing a Concern?

In August, Spirit AerosSystems announced that it has signed a MOU with Boeing for resolving commercial issues through 2022 related to several Boeing programs, including the production of 737 MAX and 787 Dreamliner. The MOU is likely to improve its relationship with Boeing by addressing several issues. This in turn is expected to help Spirit AeroSystem achieve its long-term cash flow goals.

However, as a result of the MOU, the company recognized a reach-forward loss of $353 million on the 787 program. Nevertheless, even after recognizing this loss, Spirit AeroSystems’ management raised 2017 earnings outlook, hinting at a possible upside in the company’s earnings growth during the second half of the year.

In line with this, our consensus estimate for Spirit AerosSystems’ third-quarter earnings stands at $1.26 per share, representing solid annual growth of 8.9%.

Other Factors to Consider

The company recently made some notable progress in the global fabrication business. It announced the creation of a new 5-axis fabrication center of excellence and the expansion of its chemical processing capabilities at Wichita, KS, campus.

In addition, the company announced the creation of a new three- and four-axis fabrication center of excellence in McAlester, Oklahoma, and the expansion of its manufacturing facilities in Malaysia.

In addition, Spirit AeroSystems unveiled its next-generation spoiler work on the A320 platform through application of its R&D technology strategy to reduce cost in partnership with Airbus. All these initiatives are expected to improve the company’s quarterly numbers.

Notably, our consensus estimate for Spirit AerosSystems’ third-quarter sales is pegged at $1.73 billion, representing annual growth of 1%.

Why a Likely Positive Surprise?

Our proven model shows that Spirit AeroSystems is likely to beat earnings this quarter. Notably, 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. Spirit AeroSystems possess both of these attributes, as mentioned below:

Zacks ESP: Spirit AeroSystems has an Earnings ESP of +0.58%. This is because the Most Accurate estimate is pegged at $1.27, higher than the Zacks Consensus Estimate of $1.26. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Spirit AeroSystems currently carries a Zacks Rank #2, which along with a positive earnings ESP hints at possible surprise prediction.

Meanwhile, 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 that Warrant a Look

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

Huntington Ingalls Industries, Inc. HII is expected to report third-quarter 2017 results on Nov 8. The company has an Earnings ESP of +0.72% and a Zacks Rank #3.

Leidos Holdings, Inc. LDOS is expected to report third-quarter 2017 results on Nov 2. The company has an Earnings ESP of +5.00% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank  stocks here.

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Boeing Company (The) (BA) : Free Stock Analysis Report
 
Huntington Ingalls Industries, Inc. (HII) : Free Stock Analysis Report
 
Leidos Holdings, Inc. (LDOS) : Free Stock Analysis Report
 
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