L3Harris (LHX) Q1 earnings expected to decline

Wall Street is expecting a year-over-year decline in earnings on higher revenue when L3Harris (LHX) reports results for the quarter ended March 2023. While this widely known consensus outlook is important for assessing the company’s earnings picture, it’s how actual results compare to those estimates that can impact the stock’s near-term price.

The earnings report, due on April 27, 2023, could help the stock rally if these key numbers turn out to be better than expected. On the other hand, if they don’t meet expectations, the stock could fall.

While management’s discussion of business conditions during the earnings call will largely determine the sustainability of immediate price action and future earnings expectations, it’s worth having partial insight into the likelihood of a positive EPS surprise.

Zacks Consensus Estimate

The technology and communications company is expected to report quarterly earnings of $2.87 per share in its upcoming report, representing a year-over-year change of -8%.

Revenue is expected to be $4.24 billion, up 3.4% from the same quarter last year.

Estimate the trend of change

The consensus EPS estimate for the quarter has been revised down 0.11% over the past 30 days to current levels. This essentially reflects how the analysts covering the data collectively reassessed their initial estimates during this period.

Investors should note that the direction of each analyst’s estimate revisions will not always be reflected in the aggregate change.

Whisper about earnings

Revisions to estimates prior to a company’s earnings release provide an indication of business conditions in the period in which the earnings are expected to be released. This insight is at the heart of our proprietary surprise prediction model, the Zacks Earnings ESP.

The Zacks Earnings ESP compares the Most Accurate Estimates to the Zacks Consensus Estimates for the quarter; The Most Accurate Estimate is a newer revision of the Zacks Consensus EPS estimate. The idea is that analysts reviewing their estimates just before an earnings release have the latest information that could potentially be more accurate than what they and other consensus participants had previously predicted.

So a positive or negative Earnings ESP reading theoretically indicates a likely deviation of actual earnings from consensus estimates. However, the model’s predictive power is only significant for positive ESP readings.

A positive Earnings ESP is a strong predictor of an earnings beat, especially when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy), or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise almost 70% of the time, and a solid Zacks Rank actually enhances the predictive power of Earnings ESP.

It’s important to remember that a negative Earnings ESP reading doesn’t necessarily mean earnings are lost. Our research shows that it’s difficult to predict earnings growth with any degree of confidence for stocks with negative Earnings ESP readings and/or a Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How do the numbers stack up for L3Harris?

For L3Harris, the Most Accurate Estimate is lower than the Zacks Consensus Estimate, suggesting that analysts have recently become bearish on the company’s earnings prospects. This resulted in an earnings ESP of -1.83%.

On the other hand, the company’s stock currently has a Zacks Rank of #4.

So this combination makes it difficult to clearly predict that L3Harris will beat consensus EPS estimates.

Are the financial results surprising? Does history matter?

When calculating estimates of a company’s future earnings, analysts often consider how well the company has been able to match previous estimates. So it’s worth taking a look at the surprise history to gauge its impact on the upcoming issue.

For the last reported quarter, L3Harris was expected to post earnings of $3.21 per share when in fact it produced earnings of $3.27, delivering a surprise of +1.87%.

The company has beaten consensus EPS estimates three times over the last four quarters.

Bottom Line

Beating or missing earnings may not be the only basis for a stock rising or falling. Many stocks lose ground despite beating gains due to other factors that disappoint investors. Similarly, unforeseen catalysts help many stocks gain despite missing earnings.

That said, betting on stocks that are expected to exceed earnings expectations increases your chances of success. Therefore, it is worth checking the company’s Earnings Rank and Zacks Rank before their quarterly release. Use our Earnings ESP filter to find the best stocks to buy or sell before they report.

L3Harris does not seem to be a convincing candidate for better financial results. However, investors should pay attention to other factors when betting on these stocks or staying away from them ahead of the earnings release.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.

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