Genuine Parts Company (GPC - Analyst Report) is set to report third-quarter 2016 results on Oct 19. Last quarter, the company posted a negative earnings surprise of 1.54%. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Genuine Parts is likely to beat earnings because it has the right combination of the two key ingredients.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +0.78%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: Genuine Parts currently carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank of #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.
The combination of Genuine Parts’ Zacks Rank #3 and positive ESP makes us reasonably confident of an earnings beat.
What is Driving the Better-than-Expected Earnings?
Genuine Parts has undertaken various initiatives to boost sales and earnings, such as product line expansion, penetration into new markets and cost-saving activities. The company relies on a diverse product portfolio for top- and bottom-line growth. Moreover, its recent acquisitions should drive sales in the quarter to be reported.
For 2016, Genuine Parts expects revenues to increase 2%–3% in the Automotive segment. Revenues from the Office Products segment should improve by 2%−3%. With this, annual revenue of the company is expected to improve 1%–2%. Earnings per share in 2016 are expected in the range of $4.70–$4.75. This outlook compares favorably with earnings per share of $4.63 recorded in 2015. A favorable outlook for the year raises expectations of strong results in the to-be-reported quarter as well.
However, Genuine Parts is facing challenges in the non-automotive business. The Industrial segment’s revenue is projected to either remain consistent year over year or rise 1%, compared to the previous forecast of a 1%−2% increase. The company also trimmed its outlook for the Electrical segment. Revenues from this segment are expected to decrease by 2%−3% as against the prior forecast of 1%–2% growth.
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 - Analyst 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 - Snapshot 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 - Analyst Report) has an Earnings ESP of +2.5% and a Zacks Rank #2. The company is expected to release third-quarter 2016 results on Nov 3.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>