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3 Auto Stocks Poised to Exceed Q2 Earnings Expectations
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The second-quarter earnings season for the Auto-Tires-Trucks sector kicked off last week. The profitability picture looks resilient in the face of numerous headwinds (including supply chain problems and inflationary pressure) that the space has been witnessing.
With the help of the Zacks Stock Screener, we have identified three auto players namely, Cummins (CMI - Free Report) , Allison Transmission (ALSN - Free Report) , Rivian Automotive (RIVN - Free Report) , which are positioned to outshine the Zacks Consensus Estimate in second-quarter earnings.
Picture Thus Far and Expectations
Per the Earnings Trends report dated Jul 27, 50% of the S&P 500 auto sector has reported Q2 results so far. Overall earnings of the companies that have already reported quarterly results are up 3.4% from the year-ago period on 15.6% higher revenues. The beat ratio for the bottom line is 75%, while that of the top line is 50%.
Overall Q2 earnings for the sector are projected to rise 19.8% on 18.8% higher revenues. The projected earnings growth also indicates an uptick from an 8% rise in earnings witnessed in first-quarter 2022. The top-line growth expectation this time around also suggests an increase from 12.3% in Q1.
Factors Shaping Q2 Earnings Season for Auto Stocks
After a difficult first quarter, auto sales continued to slump during the April-June 2022 timeframe as parts shortage choked supplies and low stockpiles put the automakers on edge. 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 expected during the second quarter, per Cox Automotive. June marked the 12th straight month of year-over-year decline in U.S. new vehicle sales as limited vehicle supply and tight inventories kept a lid on volumes amid the 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 are likely to partly counterbalance the headwinds.
Picking Potential Winners
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%.
Our Choices
Below we list the three auto stocks that have the right mix of elements to pull off a beat this earnings season.
Cummins (CMI - Free Report) : Technology leadership, impressive product portfolio, strong geographic diversification and broad global distribution network are expected to aid Cummins’ second-quarter 2022 results. The Zacks Consensus Estimate for Cummins’ Engine segment’s quarterly net sales is pegged at $2,665 million, suggesting an increase from the year-ago quarter’s $2,491 million.The consensus mark for the Distribution and Components segments’ net sales is $2,110 million and $2,063 million, indicating an uptick from $1,920 million and $1,994 million, respectively, generated in the comparable year-ago quarter.The Zacks Consensus Estimate for net sales from Power System and New Power segments is $1,213 million and $48 million, suggesting growth from $1,143 million and $24 million, respectively.
Cummins has an Earnings ESP of +0.09% and a Zacks Rank #3. This leading truck engine maker is scheduled to release second-quarter results on Aug 2. The Zacks Consensus Estimate for Cummins’ to-be-reported quarter’s earnings and revenues is pegged at $4.37 per share and $6.48 billion, respectively. CMI surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 0.24%.
Allison Transmission (ALSN - Free Report) : Strategic buyouts and product launches are likely to have aided Allison’s top-line growth in the to-be-reported quarter. FracTran, the firm’s next-generation hydraulic fracturing transmission, and TerraTran, the innovative propulsion solution purpose-built for the global construction and mining markets, are expected to have strengthened second-quarter performance. The launch of 100S and 130D e-axles has enriched Allison’s eGen Power portfolio.Improving demand in the Global On-Highway markets is set to aid ALSN’s second-quarter results. The consensus mark for Allison’s revenues from North America On Highway and Outside North America On Highway units is pegged at $361 million and $108 million, implying an increase from $302 million and $98 million, respectively.
Allison has an Earnings ESP of +0.28% and a Zacks Rank #3. This auto equipment supplier is scheduled to release second-quarter results on Aug 3. The Zacks Consensus Estimate for ALSN’s to-be-reported quarter’s earnings and revenues is pegged at $1.35 per share and $699 million, respectively. Allison surpassed earnings estimates in the trailing four quarters, with an average surprise of 11.7%.
Allison Transmission Holdings, Inc. Price and EPS Surprise
Rivian Automotive (RIVN - Free Report) : This electric vehicle (EV) start-up went public in November 2021. This will be the fourth time that the company will unveil quarterly results after making its Nasdaq debut. During the April-June period, the EV maker produced 4,401 vehicles at its factory in Normal, IL and delivered 4,467 units during the same time frame. Production and sales surged 72.3% and 264%, respectively, from the first-quarter 2022 levels. Rising sales of battery-powered vehicles amid heightening climate concerns are expected to buoy Rivian’s second-quarter 2022 results. While deliveries growth is encouraging, massive operating costs stemming from advanced product-development activities are likely to have dented margins.
Rivian has an Earnings ESP of +9.58% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 11. The Zacks Consensus Estimate for RIVN’s to-be-reported quarter’s bottom and top line is pegged at a loss of $1.67 a share and $338 million, respectively. Over the trailing two quarters, RIVN surpassed earnings estimates twice and missed on the other, the average negative surprise being 4.52%.
Image: Bigstock
3 Auto Stocks Poised to Exceed Q2 Earnings Expectations
The second-quarter earnings season for the Auto-Tires-Trucks sector kicked off last week. The profitability picture looks resilient in the face of numerous headwinds (including supply chain problems and inflationary pressure) that the space has been witnessing.
With the help of the Zacks Stock Screener, we have identified three auto players namely, Cummins (CMI - Free Report) , Allison Transmission (ALSN - Free Report) , Rivian Automotive (RIVN - Free Report) , which are positioned to outshine the Zacks Consensus Estimate in second-quarter earnings.
Picture Thus Far and Expectations
Per the Earnings Trends report dated Jul 27, 50% of the S&P 500 auto sector has reported Q2 results so far. Overall earnings of the companies that have already reported quarterly results are up 3.4% from the year-ago period on 15.6% higher revenues. The beat ratio for the bottom line is 75%, while that of the top line is 50%.
Overall Q2 earnings for the sector are projected to rise 19.8% on 18.8% higher revenues. The projected earnings growth also indicates an uptick from an 8% rise in earnings witnessed in first-quarter 2022. The top-line growth expectation this time around also suggests an increase from 12.3% in Q1.
Factors Shaping Q2 Earnings Season for Auto Stocks
After a difficult first quarter, auto sales continued to slump during the April-June 2022 timeframe as parts shortage choked supplies and low stockpiles put the automakers on edge. 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 expected during the second quarter, per Cox Automotive. June marked the 12th straight month of year-over-year decline in U.S. new vehicle sales as limited vehicle supply and tight inventories kept a lid on volumes amid the 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 are likely to partly counterbalance the headwinds.
Picking Potential Winners
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%.
Our Choices
Below we list the three auto stocks that have the right mix of elements to pull off a beat this earnings season.
Cummins (CMI - Free Report) : Technology leadership, impressive product portfolio, strong geographic diversification and broad global distribution network are expected to aid Cummins’ second-quarter 2022 results. The Zacks Consensus Estimate for Cummins’ Engine segment’s quarterly net sales is pegged at $2,665 million, suggesting an increase from the year-ago quarter’s $2,491 million.The consensus mark for the Distribution and Components segments’ net sales is $2,110 million and $2,063 million, indicating an uptick from $1,920 million and $1,994 million, respectively, generated in the comparable year-ago quarter.The Zacks Consensus Estimate for net sales from Power System and New Power segments is $1,213 million and $48 million, suggesting growth from $1,143 million and $24 million, respectively.
Cummins has an Earnings ESP of +0.09% and a Zacks Rank #3. This leading truck engine maker is scheduled to release second-quarter results on Aug 2. The Zacks Consensus Estimate for Cummins’ to-be-reported quarter’s earnings and revenues is pegged at $4.37 per share and $6.48 billion, respectively. CMI surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 0.24%.
Cummins Inc. Price and EPS Surprise
Cummins Inc. price-eps-surprise | Cummins Inc. Quote
Allison Transmission (ALSN - Free Report) : Strategic buyouts and product launches are likely to have aided Allison’s top-line growth in the to-be-reported quarter. FracTran, the firm’s next-generation hydraulic fracturing transmission, and TerraTran, the innovative propulsion solution purpose-built for the global construction and mining markets, are expected to have strengthened second-quarter performance. The launch of 100S and 130D e-axles has enriched Allison’s eGen Power portfolio.Improving demand in the Global On-Highway markets is set to aid ALSN’s second-quarter results. The consensus mark for Allison’s revenues from North America On Highway and Outside North America On Highway units is pegged at $361 million and $108 million, implying an increase from $302 million and $98 million, respectively.
Allison has an Earnings ESP of +0.28% and a Zacks Rank #3. This auto equipment supplier is scheduled to release second-quarter results on Aug 3. The Zacks Consensus Estimate for ALSN’s to-be-reported quarter’s earnings and revenues is pegged at $1.35 per share and $699 million, respectively. Allison surpassed earnings estimates in the trailing four quarters, with an average surprise of 11.7%.
Allison Transmission Holdings, Inc. Price and EPS Surprise
Allison Transmission Holdings, Inc. price-eps-surprise | Allison Transmission Holdings, Inc. Quote
Rivian Automotive (RIVN - Free Report) : This electric vehicle (EV) start-up went public in November 2021. This will be the fourth time that the company will unveil quarterly results after making its Nasdaq debut. During the April-June period, the EV maker produced 4,401 vehicles at its factory in Normal, IL and delivered 4,467 units during the same time frame. Production and sales surged 72.3% and 264%, respectively, from the first-quarter 2022 levels. Rising sales of battery-powered vehicles amid heightening climate concerns are expected to buoy Rivian’s second-quarter 2022 results. While deliveries growth is encouraging, massive operating costs stemming from advanced product-development activities are likely to have dented margins.
Rivian has an Earnings ESP of +9.58% and a Zacks Rank #3. The company is scheduled to release second-quarter results on Aug 11. The Zacks Consensus Estimate for RIVN’s to-be-reported quarter’s bottom and top line is pegged at a loss of $1.67 a share and $338 million, respectively. Over the trailing two quarters, RIVN surpassed earnings estimates twice and missed on the other, the average negative surprise being 4.52%.
Rivian Automotive, Inc. Price and EPS Surprise
Rivian Automotive, Inc. price-eps-surprise | Rivian Automotive, Inc. Quote