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We are in the thick of the first-quarter earnings season for the Auto-Tires-Trucks sector and the picture thus far looks pretty good despite multiple challenges that the space has been witnessing of late. Per the latest Earnings Trends report, 50% of the S&P 500 auto sector components have reported Q1 results so far. Overall earnings for the companies that have already reported quarterly results are up 62.6% from the year-ago period on 25.4% higher revenues. The beat ratio for the bottom line was 100%, while that of the top line was 75%.
Overall Q1 earnings for the sector are projected to rise 6.5% on 8.4% higher revenues, per the Earnings Trends report. The projected earnings growth, however, indicates a slowdown from a 16.6% rise in earnings witnessed in fourth-quarter 2021. Nonetheless, the top-line growth expectation this time around suggests an increase from 6.6% in Q4.
Factors Shaping Q1 Earnings Season for Auto Stocks
First-quarter 2022 was difficult for the auto market. Although buyers' appetite for personal vehicles was quite strong in the quarter under discussion, the industry was unable to meet the mounting demand. U.S. new vehicle sales declined more than 12% year over year for the January-March period due to escalating supply chain issues despite robust consumer demand. Sales plunged even more drastically in March as limited vehicle supply and tight inventories kept a lid on volumes amid the rising COVID-19 cases and compounded chip concerns over the Russia-Ukraine crisis.
While low sales volumes are likely to have played a spoilsport, the rising prices of vehicles (both used and new) are expected to have offset the same to a large extent. Amid supply-demand mismatch and tight inventory levels, prices of new and used cars hit the roof. Also, in the light of the chip crunch, automakers have been prioritizing resources toward high-margin and more popular vehicles like electric cars. The rising deliveries of new energy vehicles (including all-electric, hybrids and fuel-cell) are expected to have fueled revenues.
All in all, while soaring commodity costs and limited vehicle supply amid the chip crunch are likely to negatively impact the upcoming results, the rising average price of vehicles and high deliveries of electric cars should have partly counterbalanced the headwinds.
Making the Right Choice
Amid this backdrop, picking the right stocks that are well positioned to beat earnings estimates is not an easy task. While it is not possible 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.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with the above-mentioned combination, the chances of an earnings beat are as high as 70%.
Below we present three auto stocks that have the right combination of elements to pull off earnings beat for the first quarter:
Stocks Likely to Beat Q1 Earnings Estimates
Cummins: Technology leadership, impressive product portfolio, strong geographic diversification and broad global distribution network are expected to aid Cummins' first-quarter 2022 results. While higher year-over-year demand for Cummins' products in North America and international markets is likely to have aided revenues during the to-be-reported quarter, inflationary cost pressures and high capex to support its ramp-up capabilities in fuel cell and hydrogen production technology might have acted as spoilsports.
Cummins has an Earnings ESP of +2.22% and a Zacks Rank #3. This leading truck engine maker is scheduled to release first-quarter results on May 3. The Zacks Consensus Estimate for Cummins' to-be-reported quarter's earnings and revenues is pegged at $3.55 per share and $6.02 billion, respectively. CMI surpassed earnings estimates in two of the trailing four quarters for as many misses, with an average surprise of 0.50%.
Vroom: Vroom is an online used car seller based in New York. The company operates under three main business segments — Texas Direct Auto, e-commerce and wholesale. The e-commerce business, built on its online marketplace for buying and selling used vehicles, is the firm's key growth engine and forms the bulk of the top line. The rising average prices of used vehicles are expected to aid the firm's upcoming results. The acquisition of United Auto Credit Corporation bolstered Vroom's captive financing capabilities and unlocked significant value for the business and stakeholders.
Vroom has an Earnings ESP of +2.70% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 9. The Zacks Consensus Estimate for Vroom's to-be-reported quarter's top and bottom lines is pegged at $879 million and a loss of $1.02 per share, respectively. VRM surpassed earnings estimates in three of the trailing four quarters and missed on the other occasion, with an average surprise of 1.8%.
LCI Industries: LCI Industries, together with its subsidiaries, manufactures and supplies components for the manufacturers of recreational vehicles and adjacent industries in the United States and internationally. The demand for RVs continued momentum because of safe travel enthusiasts and millennials' zeal for off-the-grid living, which bodes well for companies like LCII. The sustained inclination of people to opt for RVs to go camping around the country or enjoy a vacation is anticipated to have boosted the demand for LCII's products during the to-be-reported quarter.
LCII has an Earnings ESP of +12.72% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 10. The Zacks Consensus Estimate for LCI Industries' to-be-reported quarter's earnings and revenues is pegged at $4.48 per share and $1.30 billion, respectively. LCII surpassed earnings estimates in three of the trailing four quarters and missed on another occasion, with an average surprise of 12.9%.
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Cummins, Vroom and LCI Industries
For Immediate Release
Chicago, IL – April 29, 2022 – Today, Zacks Equity Research discusses Cummins (CMI - Free Report) , Vroom (VRM - Free Report) and LCI Industries (LCII - Free Report) .
Industry: Auto - Tires - Trucks
Link: https://www.zacks.com/stock/news/1910013/3-auto-stocks-positioned-for-potential-q1-earnings-beat
We are in the thick of the first-quarter earnings season for the Auto-Tires-Trucks sector and the picture thus far looks pretty good despite multiple challenges that the space has been witnessing of late. Per the latest Earnings Trends report, 50% of the S&P 500 auto sector components have reported Q1 results so far. Overall earnings for the companies that have already reported quarterly results are up 62.6% from the year-ago period on 25.4% higher revenues. The beat ratio for the bottom line was 100%, while that of the top line was 75%.
Overall Q1 earnings for the sector are projected to rise 6.5% on 8.4% higher revenues, per the Earnings Trends report. The projected earnings growth, however, indicates a slowdown from a 16.6% rise in earnings witnessed in fourth-quarter 2021. Nonetheless, the top-line growth expectation this time around suggests an increase from 6.6% in Q4.
Factors Shaping Q1 Earnings Season for Auto Stocks
First-quarter 2022 was difficult for the auto market. Although buyers' appetite for personal vehicles was quite strong in the quarter under discussion, the industry was unable to meet the mounting demand. U.S. new vehicle sales declined more than 12% year over year for the January-March period due to escalating supply chain issues despite robust consumer demand. Sales plunged even more drastically in March as limited vehicle supply and tight inventories kept a lid on volumes amid the rising COVID-19 cases and compounded chip concerns over the Russia-Ukraine crisis.
While low sales volumes are likely to have played a spoilsport, the rising prices of vehicles (both used and new) are expected to have offset the same to a large extent. Amid supply-demand mismatch and tight inventory levels, prices of new and used cars hit the roof. Also, in the light of the chip crunch, automakers have been prioritizing resources toward high-margin and more popular vehicles like electric cars. The rising deliveries of new energy vehicles (including all-electric, hybrids and fuel-cell) are expected to have fueled revenues.
All in all, while soaring commodity costs and limited vehicle supply amid the chip crunch are likely to negatively impact the upcoming results, the rising average price of vehicles and high deliveries of electric cars should have partly counterbalanced the headwinds.
Making the Right Choice
Amid this backdrop, picking the right stocks that are well positioned to beat earnings estimates is not an easy task. While it is not possible 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.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
You can see the complete list of today's Zacks #1 Rank stocks here.
Our research shows that for stocks with the above-mentioned combination, the chances of an earnings beat are as high as 70%.
Below we present three auto stocks that have the right combination of elements to pull off earnings beat for the first quarter:
Stocks Likely to Beat Q1 Earnings Estimates
Cummins: Technology leadership, impressive product portfolio, strong geographic diversification and broad global distribution network are expected to aid Cummins' first-quarter 2022 results. While higher year-over-year demand for Cummins' products in North America and international markets is likely to have aided revenues during the to-be-reported quarter, inflationary cost pressures and high capex to support its ramp-up capabilities in fuel cell and hydrogen production technology might have acted as spoilsports.
Cummins has an Earnings ESP of +2.22% and a Zacks Rank #3. This leading truck engine maker is scheduled to release first-quarter results on May 3. The Zacks Consensus Estimate for Cummins' to-be-reported quarter's earnings and revenues is pegged at $3.55 per share and $6.02 billion, respectively. CMI surpassed earnings estimates in two of the trailing four quarters for as many misses, with an average surprise of 0.50%.
Cummins Inc. price-eps-surprise | Cummins Inc. Quote
Vroom: Vroom is an online used car seller based in New York. The company operates under three main business segments — Texas Direct Auto, e-commerce and wholesale. The e-commerce business, built on its online marketplace for buying and selling used vehicles, is the firm's key growth engine and forms the bulk of the top line. The rising average prices of used vehicles are expected to aid the firm's upcoming results. The acquisition of United Auto Credit Corporation bolstered Vroom's captive financing capabilities and unlocked significant value for the business and stakeholders.
Vroom has an Earnings ESP of +2.70% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 9. The Zacks Consensus Estimate for Vroom's to-be-reported quarter's top and bottom lines is pegged at $879 million and a loss of $1.02 per share, respectively. VRM surpassed earnings estimates in three of the trailing four quarters and missed on the other occasion, with an average surprise of 1.8%.
Vroom, Inc. price-eps-surprise | Vroom, Inc. Quote
LCI Industries: LCI Industries, together with its subsidiaries, manufactures and supplies components for the manufacturers of recreational vehicles and adjacent industries in the United States and internationally. The demand for RVs continued momentum because of safe travel enthusiasts and millennials' zeal for off-the-grid living, which bodes well for companies like LCII. The sustained inclination of people to opt for RVs to go camping around the country or enjoy a vacation is anticipated to have boosted the demand for LCII's products during the to-be-reported quarter.
LCII has an Earnings ESP of +12.72% and a Zacks Rank #3. The company is scheduled to release first-quarter results on May 10. The Zacks Consensus Estimate for LCI Industries' to-be-reported quarter's earnings and revenues is pegged at $4.48 per share and $1.30 billion, respectively. LCII surpassed earnings estimates in three of the trailing four quarters and missed on another occasion, with an average surprise of 12.9%.
LCI Industries price-eps-surprise | LCI Industries Quote
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Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.