Harman International Industries Inc is expected to report second-quarter fiscal 2017 results on Jan 26. Last quarter, it posted a positive earnings surprise of 21.43%. Harman has surpassed estimates in three out of the trailing four quarters, resulting in an average positive earnings surprise of 6.52%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Harman is one of the leading providers in the car infotainment space. The growing demand for connected cars bodes well for the company’s cloud business. Apart from this, its strong manufacturing capacities, growing product pipeline, solid patent portfolio and accretive acquisitions are the other positives. Plus, its acquisition by Samsung should help its performance. Last November, the Asian giant announced the takeover of Harman in an all cash deal worth $8 billion (or $112 per share representing 28% premium to Nov 11, 2016 closing price). Following the takeover, Harman will function as an independent unit with CEO Dinesh Paliwal retaining his responsibilities. The acquisition, which is anticipated to close by mid 2017, has been approved by both the companies. It now awaits shareholders’ approval. 

In the yet-to-be reported quarter, the company partnered with Navdy, a tech innovator, to offer automotive OEMs an AR driving device. It added Harman Ignite Platform and the E55BT Quincy Edition earphones to its pipeline. These will likely drive its top line.

However, a major concern for the company is the sluggishness in the U.S. auto market. This is because Harman is exposed to some serious customer concentration risks with its top four customers accounting for approximately half of its revenues. In addition, rising competition and sluggish growth in its Professional Solutions segment remain headwinds. Also, the closure of the deal remains uncertain as rumors suggest that shareholders might vote against it as they feel that the offer price is too low. 

Harman International Industries, Incorporated Price and EPS Surprise

Harman International Industries, Incorporated Price and EPS Surprise | Harman International Industries, Incorporated Quote

Earnings Whispers

Our proven model does not conclusively show that Harman is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Harman is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.87. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Harman currently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Ranks #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are a few companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming release:

Applied Optoelectronics Inc. (AAOI Quick QuoteAAOI - Free Report) with an Earnings ESP of +15.87% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Oclaro Inc. with an Earnings ESP of +10.53% and a Zacks Rank #1.

Te Connectivity (TEL Quick QuoteTEL - Free Report) with an Earnings ESP of +1.00% and a Zacks Rank #2.

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