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Is General Motors (GM) Positioned to Beat on Q3 Earnings?

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General Motors Company (GM - Free Report) is set to report third-quarter 2016 results on Oct 25. Last quarter, the company delivered a positive earnings surprise of 22.37%. Let us see how things are shaping up for this announcement.

Why a Likely Positive Surprise?

Our proven model shows that General Motors is likely to beat earnings this quarter because it has the right combination of the two key components.

Zacks ESP: Earnings ESP for General Motors is currently pegged at +0.69% as the Most Accurate estimate of $1.45 stands above the Zacks Consensus Estimate of $1.44. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.

Zacks Rank: General Motors currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

The combination of General Motors’ Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.

GENERAL MOTORS Price and EPS Surprise

 

GENERAL MOTORS Price and EPS Surprise | GENERAL MOTORS Quote

What is Driving the Better-than-Expected Earnings?

General Motors is striving to improve its results by launching new vehicles, expanding its business, reducing costs and driving efficiency in core operations. The company achieved cost savings of $3.1 billion through the first half of 2016, which is expected to continue in the third quarter.

In addition, General Motors is focused on investment in innovative technologies and vehicles, which should provide sustained growth. It has also adopted a comprehensive capital allocation strategy to return value to shareholders.

Further, the automaker is focusing on the emerging markets to enhance its global sales by increasing capacity investment.It is also gaining new contracts to expand its business. In Jul 2016, General Motors and ride-hailing company Lyft Inc. expanded their short-term rental program to California and Colorado. The incremental revenue from this venture should boost results.

Moreover, General Motors is witnessing record sales volume in China, which should have a positive impact on revenues and earnings.

Based on the strong operating performance in the first half of the year, General Motors raised its 2016 earnings per share expectation to $5.50–$6.00, from the previous projection of $5.25–$5.75. This raises expectations of strong results in the third quarter.

Stocks to Consider

Here are some other companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The Goodyear Tire & Rubber Company (GT - Free Report) , which is expected to report third-quarter 2016 results on Nov 3, has an Earnings ESP of +1.75% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fox Factory Holding Corp (FOXF - Free Report) has an Earnings ESP of +2.56% and a Zacks Rank #2 (Buy). The company will report third-quarter 2016 financial numbers on Nov 2.

Magna International Inc. (MGA - Free Report) has an Earnings ESP of +1.67% and a Zacks Rank #2. The company is expected to release third-quarter 2016 results on Nov 3.

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