The third-quarter earnings season for the Auto-Tires-Trucks sector began on Oct 18. So far, two S&P 500 sector components — Tesla (TSLA Quick QuoteTSLA - Free Report) and Genuine Parts (GPC Quick QuoteGPC - Free Report) — have reported quarterly numbers. Electric vehicle (EV) king Tesla’s 10 consecutive quarter-long beat streak snapped as it reported lower-than-expected earnings for the third quarter of 2023. Revenues also lagged estimates. Auto replacement parts provider Genuine Parts topped earnings estimate but missed the mark for sales.

Per the Earnings Trend report dated Oct 18, the auto sector’s earnings for the third quarter are expected to decline 12.2% on a year-over-year basis. As for revenues, they are estimated to grow 5.8% year over year.

With a majority of companies left to release third-quarter 2023 results, we have identified — with the help of the Zacks Stock Screener — a few auto players, which are positioned to outshine the Zacks Consensus Estimate in third-quarter earnings. These include PACCAR Inc. (PCAR Quick QuotePCAR - Free Report) , Allison Transmission Holdings (ALSN Quick QuoteALSN - Free Report) and Ford (F Quick QuoteF - Free Report) . Before we discuss the companies, let’s take a look at the factors shaping the quarterly performance of automotive companies.

Factors at Play

Per Automotive News, U.S. light vehicle sales in the third quarter of 2023 topped 3.8 million units, up 17% year over year. The seasonally adjusted annualized sales rate for September 2023 was 15.2-15.5 million vehicles, up from 13.7 million vehicles a year earlier, per GlobalData. Improving retail inventories and strong fleet shipments aided the U.S. auto market in the third quarter.

At the beginning of September, U.S. inventories had 2.2 million vehicles, representing an increase of approximately 813,000 cars and light trucks compared to September 2022, according to Cox Automotive. This marked a 60% increase from the year-ago levels and the highest new-vehicle inventory since early 2021. 

The generous incentives offered by automakers are expected to have played a crucial role in boosting retail deliveries in the third quarter of 2023, offsetting the impact of high interest rates. However, discounts might have impacted margins. Also, commodity costs, forex woes, tough labor market and logistical challenges are likely to have played spoilsport. Moreover, high operating expenses, including R&D to develop technologically advanced products to adapt to the changing dynamics of the auto industry, are expected to have dented earnings.

Picking Potential Winners

While it is not possible to be sure about which companies are well positioned to beat earnings estimates, 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 abovementioned combination, the chances of an earnings beat are as high as 70%.

Our Choices

PACCAR is one of the leading names in the trucking business, with reputed brands like Kenworth, Peterbilt and DAF. The new DAF lineup (comprising the XF, XG and XD models) and accelerated efforts toward electrification, connected vehicle services and advanced driver-assistance are likely to have bolstered third-quarter results.

We expect truck deliveries of 51,421 units during the quarter under discussion, which reflects 15.8% growth year over year.  While PACCAR derives the bulk of its revenues from truck sales, it also produces and sells a wide range of parts, including its brand of engines. Continued growth in aftermarket parts — which is a high margin and less cyclic business — bodes well. Our projections for Trucks and Parts revenues imply year-over-year growth of 22.2% and 7.2%, respectively.

PACCAR has an Earnings ESP of +1.18% and a Zacks Rank #2. The company is scheduled to release third-quarter results on Oct 24. The Zacks Consensus Estimate for PACCAR’s to-be-reported quarter’s earnings and revenues is pegged at $2.07 per share and $8.02 billion, respectively. The EPS estimate for the third quarter has moved by a cent in the past seven days. PCAR surpassed earnings estimates in the trailing four quarters, with the average surprise being 15.21%.

Allison is a manufacturer of fully automatic transmissions for medium and heavy-duty commercial and heavy-tactical U.S. defense vehicles. The strategic buyouts of Walker Die, C&R Tool & Engineering, Vantage Power, the Off-Highway transmission portfolio of AVTEC and AxleTech’s EV systems division are likely to aid Allison’s third-quarter results. Regular product launches, including FracTran, TerraTran and the 3414 Regional Haul Series fully automatic transmission, bode well.

The eGen Flex portfolio and the eGen Force portfolio demonstrate its ability to adapt to the changing dynamics of the auto industry and are expected to have driven third-quarter revenues. Our estimate for the company’s North America On-Highway — which accounts for the bulk of its revenues — is pegged at around $368 million, implying year-over-year growth of 8.3%.

Allison has an Earnings ESP of +8.19% and a Zacks Rank #1. The company is scheduled to release third-quarter results on Oct 25. The Zacks Consensus Estimate for ALSN’s to-be-reported quarter’s earnings and revenues is pegged at $1.71 per share and $759.2 billion, respectively. The EPS estimate for the third quarter has moved by a cent in the past seven days. ALSN surpassed earnings estimates in the trailing four quarters, with the average surprise being 19.32%.

Ford, one of the leading automakers in the United States, saw its US sales increase 7.7% to 500,504 units. Sales of the Ford brand rose 8%, while that of Lincoln increased 1.8%. The third quarter of 2023 marked record electric vehicle sales for Ford on the soaring popularity of Mustang Mach-E and E Transit.

For the to-be-reported quarter, our estimate for Ford Blue wholesale shipments is pegged at 750,000 units, indicating an increase of 1.2% from the year-ago period. The combination of Ford Pro's strong order books and the successful launch of the all-new Super Duty sets the stage for promising results of the Ford Pro segment. Our forecast for third-quarter Ford Blue and Ford Pro adjusted EBIT implies an uptick of 6.2% and a whopping 370.1% on a year-over-year basis.

Ford has an Earnings ESP of +14.57% and a Zacks Rank #3. The company is scheduled to release third-quarter results on Oct 26. The Zacks Consensus Estimate for Ford’s to-be-reported quarter’s earnings and revenues is pegged at 40 cents per share and $37.83 billion, respectively. The EPS estimate for the third quarter has moved by 6 cents in the past 90 days. Ford surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average surprise being 20.11%.