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5 Auto Stocks Poised to Beat Estimates This Earnings Season

Zacks Equity Research

The fourth-quarter earnings season for the Auto-Tires-Trucks sector will kick off today, with two major S&P sector components — Harley-Davidson and PACCAR — scheduled to release financial numbers before the opening bell. A host of auto companies are set to unveil quarterly results by the end of this week.

The auto sector’s earnings season is anticipated to be lackluster amid macro-economic headwinds and other industry-related challenges. Automakers around the globe have been struggling with declining car sales amid economic slowdown concerns. China, the world’s largest auto market, witnessed a massive decline in vehicle sales during the quarter amid recession worries and trade war tensions. U.S. light vehicle sales in the fourth quarter also fell 1.7% year over year to 42, 90,911 units. Vehicle sales from each of the Detroit 3 carmakers— Ford, General Motors and Fiat Chrysler— dropped year over year in the December quarter.

Increasing popularity of ride-sharing platforms is likely to have weighed on car sales. Stricter emission woes, and shift toward electric and autonomous vehicles have changed the sector’s dynamics. Widespread usage of technology and rapid digitization resulted in fundamental restructuring of the automotive market. This is likely to have increased manufacturing vehicles’ costs, which are passed on to consumers, in turn denting demand. Meanwhile, technological complications call for high-priced aftersales services, which may have created new opportunities and challenges for auto equipment manufacturers.

Evidently, overall fourth-quarter earnings and revenues for the auto sector are projected to decline 59.1% and 5.2% year over year, per the latest Earnings Preview. In fact, the auto sector’s earnings are likely to decline the most among all the 16 Zacks sectors.

Selecting Potential Winners

Clearly, challenges gripping the auto sector paint a gloomy picture for a number of industry participants this reporting cycle. Amid this backdrop, it is wise to select industrial stocks that are well positioned to beat on earnings in their upcoming releases.However, with a wide range of auto firms thronging the investment space, it is by no means an easy task for investors to select stocks having the potential to deliver better-than-expected earnings.

While it is impossible to be absolutely sure about such outperformers, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

A positive Earnings ESP is a chief ingredient of our proven quantitative model for identifying stocks with maximum chances of pulling off a positive surprise. It shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.You can further narrow down the list of choices by picking stocks carrying a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that for stocks with the above-mentioned combination, chances of an earnings beat are as high as 70%.

Our Picks

With the Zacks Stock Screener, we have identified five auto stocks poised to trump earnings estimates in the fourth quarter.

You may consider Tesla, Inc. TSLA, electric vehicle pioneer, which carries a  Zacks Rank #2 and has an Earnings ESP of +3.34%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.62 per share on revenues of $7.05 billion. Record deliveries, aided by stellar Model 3 sales, and product launches hold the key to Tesla’s success. The company is scheduled to announce quarterly results on Jan 29.You can see the complete list of today’s Zacks #1 Rank stocks here.

Tesla, Inc. Price and EPS Surprise

Tesla, Inc. Price and EPS Surprise

Tesla, Inc. price-eps-surprise | Tesla, Inc. Quote

Another worthwhile option is Autoliv, Inc. ALV, which is a supplier of automotive safety systems. The company, which is scheduled to announce quarterly results today, currently carries a Zacks Rank #3 and has an Earnings ESP of +0.28%.The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.78 per share on revenues of $2.14 billion.The firm’s product launches and strong performance of frontal and side airbags, especially in North America, are appreciable.

Autoliv, Inc. Price and EPS Surprise

Autoliv, Inc. Price and EPS Surprise

Autoliv, Inc. price-eps-surprise | Autoliv, Inc. Quote

Lear Corporation LEA, a manufacturer of automotive seating and electronic systems, also deserves a mention. The firm, which is slated to report results today, currently carries a Zacks Rank #3 and has an Earnings ESP of +7.10%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $2.14 per share on revenues of $4.5 billion.Growing mix of high-content crossover SUVs and the rising need for electrification and connectivity are likely to have buoyed the firm’s revenues from Seating and E-Systems segments.

Lear Corporation Price and EPS Surprise

Lear Corporation Price and EPS Surprise

Lear Corporation price-eps-surprise | Lear Corporation Quote

Another stock worth betting on is engine and powertrain manufacturer Cummins Inc. CMI, which has a Zacks Rank #3 and an Earnings ESP of +0.76%. The Zacks Consensus Estimate for the quarter to be reported is earnings of $2.46 per share on revenues of $5.4 billion. The firm’s diversified innovative portfolio and strategic acquisitions are likely to have boosted performance. The company is scheduled to announce quarterly results on Feb 4.

Cummins Inc. Price and EPS Surprise

Cummins Inc. Price and EPS Surprise

Cummins Inc. price-eps-surprise | Cummins Inc. Quote

Investors can even count on Visteon Corporation VC, a maker of cockpit electronics and connected-car technology. It currently has a Zacks Rank #3 and an Earnings ESP of +7.74%.The Zacks Consensus Estimate for the quarter to be reported is earnings of $1.55 per share on revenues of $745.6 million.Continued ramp-up of production of displays and digital cluster products has been boding well for the company. The firm is slated to announce results on Feb 20.

Visteon Corporation Price and EPS Surprise

Visteon Corporation Price and EPS Surprise

Visteon Corporation price-eps-surprise | Visteon Corporation Quote

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>


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Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
Lear Corporation (LEA) : Free Stock Analysis Report
 
Autoliv, Inc. (ALV) : Free Stock Analysis Report
 
Visteon Corporation (VC) : Free Stock Analysis Report
 
Cummins Inc. (CMI) : Free Stock Analysis Report
 
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