The Zacks Analyst Blog Highlights: Target, Northrop Grumman, Lockheed Martin, Engility Holdings and General Dynamics

Oct 22, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Oct. 22, 2013 /PRNewswire/ -- announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Target Corporation (NYSE: TGT-Free Report), Northrop Grumman Corp. (NYSE: NOC-Free Report), Lockheed Martin Corp. (NYSE: LMT-Free Report), Engility Holdings, Inc. (Nasdaq: EGL-Free Report) and General Dynamics Corp. (NYSE: GD-Free Report).


Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Monday's Analyst Blog:

Bearish View on Target

On Oct 18, we downgraded our long-term recommendation on Target Corporation (NYSE: TGT-Free Report) to Underperform based on the company's disappointing second-quarter fiscal 2013 performance coupled with the tough economic scenario and a cautious consumer spending environment. The stock currently carries a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Estimates for Target have shown a downtrend since the company reported dismal second-quarter results on Aug 21, 2013. The quarterly earnings including U.S. and Canadian operations came in at 95 cents a share that dipped 10.4% from $1.06 reported in the prior-year quarter. Total revenue increased 2% to $17,117 million but fell short of the Zacks Consensus Estimate of $17,357 million.

Management now anticipates fiscal-2013 earnings to come in at the lower end of the earlier provided guidance range of $4.70 to $4.90 per share due to household budgetary constraints. The macroeconomic condition is still not stable and consumers will tread cautiously with regard to the purchase of discretionary items.

We expect footfall to be challenging given the near-term headwinds such as higher payroll taxes, sluggish economic recovery and e-Commerce competition. Consequently, management now projects comparable-store sales growth for the full year to be 1%, down from a range of 2% to 2.5% forecasted earlier.

Consequently, we are witnessing a fall in the Zacks Consensus Estimate, as analysts become less constructive on the stock's future performance. The Zacks Consensus Estimate for fiscal 2013 fell by 10% to $3.88 and for fiscal 2014 it tumbled by 7.9% to $5.00 per share, over the past 60 days.

Northrop Grumman Set to Beat Earnings

We expect Northrop Grumman Corp. (NYSE: NOC-Free Report) to beat expectations when it reports third quarter 2013 results on Oct 23.

Why a Likely Positive Surprise?

Our proven model shows that Northrop Grumman is likely to beat earnings because it has the right combination of two key ingredients.

Positive Zacks ESP: Expected Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +2.21%. This is a meaningful and leading indicator of a likely positive earnings surprise for the shares.

Zacks #2 Rank (Buy):

Note that stocks with Zacks Ranks of #1, 2 and 3 have a significantly higher chance of beating earnings. The Sell rated stocks (#4 and 5) should never be considered going into an earnings announcement.  

The combination of Northrop Grumman's Zacks Rank #2 (Buy) and 2.21% ESP makes us confident of a positive earnings beat on Oct 23, 2013.

What is Driving the Better than Expected Earnings?

Northrop has a strong presence in Air Force, Space & Cyber Security programs. The company's product line is well positioned in high priority categories, such as, defense electronics, unmanned aircraft and missile defense.Northrop Grumman is taking several initiatives to cater to specific customer needs in order to increase affordability and cost competitiveness. The company is working to establish Aerospace Design Centers of Excellence at its various centers. These actions aim at leveraging capabilities in key areas of manned aircraft and unmanned systems. In order to improve its cost competitiveness, the company is closing and/or consolidating numerous facilities. While the company's Global Hawk program is maturing, it continues to progress well on other unmanned programs, such as, NATO AGS and Fire Scout.

Despite the recent U.S. government shutdown and threat of sequestration, the company continues to experience a steady flow of contracts from the Department of Defense (DoD). Revenue and earnings growth are driven by its strong presence in the current focus areas of cyber security, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance systems, advanced electronics and software development.

Other Stocks to Consider

Northrop Grumman is not the only firm looking up this earnings season. We also see likely earnings beats coming from these three industry peers:

Lockheed Martin Corp. (NYSE: LMT-Free Report), with Earnings ESP of +2.21% and a Zacks Rank #1 (Strong Buy).

Engility Holdings, Inc.




Free Report

), with Earnings ESP of +7.04% and a Zacks Rank #3 (Hold).

General Dynamics Corp. (NYSE: GD-Free Report), with Earnings ESP of +1.80% and a Zacks Rank #3 (Hold).

 Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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