Back to top

Image: Bigstock

Honda (HMC) to Release Q3 Earnings: What's in the Cards?

Read MoreHide Full Article

Honda Motor Company (HMC - Free Report) is expected to report third-quarter fiscal 2018 (ended Dec 31, 2017) results on Feb 2. Last quarter, the company delivered a positive surprise of 75.5%. In fact, Honda surpassed expectations in each of the trailing four quarters with an average beat of 72%.

In the last three months, shares of Honda have underperformed the industry it belongs to. The stock has gained 12.4% compared with the industry’s rally of 13.6% during the period.

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

Factors Influencing This Quarter

For fiscal 2018, Honda expects revenues to improve 7.5% to ¥15.1 trillion ($133.9 billion) compared with the previous projection of 3.6% rise to ¥14.5 trillion ($129.4 billion).

Per Honda’s updated Vision 2030 strategy plan, it has been focusing on developing electric vehicles (EVs), self-driving vehicles, plug-in hybrid as well as hydrogen fuel cell vehicles. The company has plans to unveil two fully-electric vehicles, each for the Chinese and the European market by 2018.

Honda Motor Company, Ltd. Price and EPS Surprise

 

Also, in order to eliminate charging hurdles for battery-powered cars, Honda aims to roll out electric vehicles capable of 15-minute charging, in 2022. Further, in sync with its electric vehicles developmental strategies, the company has been considering to manufacture solid-state batteries for the same. These plans are in line with its tabs kept on development and launch of EVs by its counterparts.

Honda also has its sights set on coordinating research and development as well as procuring and manufacturing products with an aim to reduce development costs as part of its Vision 2030 strategy plan.

However, frequent vehicle recalls over the past few years have been hitting the customer’s confidence in the company apart from increasing its expenses. The most recent recall was in January this year wherein it recalled around 465,000 vehicles in the United States including Honda and Acura models.

Also, a rise in costs related to settlement of multi-district class action litigation and the reverse effect from an impact of pension plan amendments might declining the operating income in fiscal 2018. In second-quarter 2018, consolidated operating profit came in at ¥152.9 billion ($1.36 billion), reflecting a 32.9% slump from the prior-year quarter’s tally.

Moreover, the stock has seen the Zacks Consensus Estimate for third-quarter fiscal 2018 earnings being revised 4.9% downward over the last 30 days.

Earnings Whispers

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

Zacks ESP: Honda has an Earnings ESP of 0.00% because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 78 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Honda carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.

We caution against the Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few stocks worth considering from the same space with the right combination of elements to beat on earnings this time around:

Allison Transmission Holdings, Inc. (ALSN - Free Report) has an Earnings ESP of +10.40% and a Zacks Rank #2. The company is expected to report fourth-quarter 2017 results on Feb 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

Dana Incorporated (DAN - Free Report) has an Earnings ESP of +2.83% and a Zacks Rank of 2. The company’s fourth-quarter 2017 results are scheduled to be released on Feb 13.

BorgWarner Inc. (BWA - Free Report) has an Earnings ESP of +0.48% and a Zacks Rank of 3. The company’s fourth-quarter 2017 results are slated to be announced on Feb 8.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Published in