Can Rockwell Collins Win From Boeing and Lockheed Martin's Success?

Rockwell Collins (COL) will release its quarterly report on Friday, and shareholders have watched the stock pull back slightly from its highest levels since before the financial crisis in light of the government shutdown. Now that the shutdown crisis is over, investors in Rockwell Collins hope that the strength in commercial and military aircraft manufacturing will translate to success for the aviation and communication systems maker, especially given the importance that Boeing (BA 1.09%) and Lockheed Martin (LMT 0.96%) have to the company.

Like Boeing, Lockheed Martin, and many other companies that rely on the Defense Department for revenue, Rockwell Collins has seen headwinds from sequestration and the impact it has had on government spending. Yet Rockwell has managed to make the most of its military business while also reaping the rewards of extremely favorable conditions in the commercial aircraft market, where purchasers are flocking to newer, more fuel-efficient aircraft designs to cut their own operating costs. Can the good times continue? Let's take an early look at what's been happening with Rockwell Collins over the past quarter and what we're likely to see in its report.

Stats on Rockwell Collins

Source: Yahoo! Finance.

Does Rockwell Collins face a threat to its earnings?
Analysts have gotten much more concerned in recent months about Rockwell Collins earnings prospects. They've only cut their third-quarter estimates by a single penny per share, but they've slashed their full-year fiscal 2014 projections by almost 10%. The stock has been choppy lately but is still up 2% since late July.

Most of the drop in Rockwell's future projections came from forward guidance the company gave last month. Rockwell predicted an earnings range of $4.30-$4.50 per share for fiscal 2014 on revenue of $4.5 billion-$4.6 billion, falling well short of what investors were expecting from the company. New CEO Kelly Ortberg was hopeful that "2014 represents the bottom for this defense cycle," and delays in new aircraft production and falling business-jet sales could weigh on anticipated revenue growth.

But Rockwell Collins has had enormous success with innovative products to meet high-priority needs that aren't likely to be budget-cut targets. For instance, Rockwell and Elbit Systems (ESLT -1.87%) helped develop a helmet for Lockheed Martin that it plans to use in its F-35 Lightning II military aircraft. Using imagery from Northrop Grumman's Distributed Aperture System sensors, Rockwell's helmet enables pilots to detect and track missiles and launch points while offering 360-degree views even in night conditions. The F-35 Joint Program Office said earlier this month that it would stop looking at alternate helmet designs, confirming Rockwell's confidence in its system.

The even bigger opportunity for Rockwell Collins, though, lies in the commercial space. CEO Ortberg was instrumental in getting Rockwell's systems in place in civilian aircraft for Boeing as well as planes from rival Airbus and Bombardier. Rockwell believes that higher Boeing 787 production and initial Airbus A350 sales should help send its sales of original equipment in its air-transport aircraft segment up by percentages in the low-teens in fiscal 2014. Boeing's success should also boost aftermarket sales.

In the Rockwell Collins earnings report, watch to see whether the company's results match up with its preliminary guidance from last month. Now that the shutdown has ended, Rockwell Collins would like to see an end to sequestration in order to take full advantage of the opportunities it has both from Boeing and from Lockheed Martin.

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