An earnings announcement is an important event and has a large impact on an investors’ opinion about the current and future value of a particular company. A positive earnings report can lead to price appreciation, which produces higher returns for its investors.
That said, earnings releases for different sectors, including the Auto segment, are now pouring in. Per the latest Earnings Outlook, as of Jan 31, 185 companies from the S&P 500 index have already announced results for the quarter ending Dec 31, 2017, registering earnings and revenue beat ratios of 82.2% and 80%, respectively. Earnings and revenues beat ratios for the companies coming from the Auto sector are 66.7% and 100%, respectively.
The auto sector’s bottom line in the to-be-reported quarter is expected to register 10.3% growth, while the top line is likely to witness a 2.5% year-over-year decline. However, the S&P 500 companies are estimated to register 11.9% and 7.6% year-over-year rise in earnings and revenues, respectively, during the quarter.
Now, let’s take a look at the auto companies slated to report results in the next few weeks. After a record 2016, auto sales in the United States declined in 2017. This is the first time since the financial crisis that auto sales have declined from the previous-year figure.
According to Autodata, in 2017, auto sales in the United States were 17.2 million, down from 17.85 million in the prior year. Despite the decline, 2017 overall was a robust year for the auto industry. Auto sales are likely to decline further in 2018 despite a strong economy. Rising interest rates and return of a huge number of late-model used cars are coming in the way of new vehicle sales.
Auto Sales: On A Rough Track
Auto companies have come up with January 2018 sales figures. In January, Ford Motor Company (F) and Fiat Chrysler Automobiles N.V. reported year-over-year sales decline, whereas General Motors Company (GM) and Toyota Motor Corporation reported an increase in sales.
Major automakers expect auto sales in 2018 to remain weak. Dealing with consumers’ changing preferences; a shift from passenger cars to pickup trucks and SUVs will be a challenge for automakers.
Also in the coming days, vehicle sales will depend not only on different conventional determinants such as the energy price and state of the economy, but also on some new factors, such as the progress made in the electric and autonomous vehicle driving front.
Auto Stocks: Some Bright Spots
In an otherwise gloomy environment, there are certainly some discernible bright spots. Healthy economic growth, better employment and record high consumer confidence are likely to give an impetus to auto demand. Also, the tax cuts should provide some extra advantage to profits and sales.
Also, some investors are moving into auto stocks with the belief that the high-margin pickup trucks and SUVs will pull automakers through any downturn.
The Zacks Methodology
Irrespective of the outlook of the auto sector, there are a few auto stocks which are likely to deliver a positive earnings surprise in the fourth quarter.
Figuring out such prospective stocks could be quite tough unless one applies the proper method. The Zacks methodology makes the task simple, by combining a favorable Zacks Rank – Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) – and a positive Earnings ESP.
Earnings ESP, shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate. And research shows that for stocks with this combination of a Zacks Rank and positive ESP, chances of a positive earnings surprise are as high as 70%.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Auto Picks
Here are five auto stocks that have the right combination of elements to deliver an earnings beat when they report results.
BorgWarner Inc. (BWA - Free Report) has an Earnings ESP of +0.89% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rankstocks here.
Headquartered in Auburn Hills, MI, BorgWarner is a leading manufacturer of powertrain products for major automakers. The company is expected to report fourth-quarter 2017 results on Feb 8.
The Goodyear Tire & Rubber Company (GT - Free Report) has an Earnings ESP of +4.92% and a Zacks Rank #3.
Headquartered in Akron, OH, Goodyear is one of the world’s largest tire companies. The company is expected to report fourth-quarter 2017 results on Feb 8.
Tenneco Inc. (TEN - Free Report) has an Earnings ESP of +1.92% and a Zacks Rank #3.
Headquartered in Lake Forest, IL, Tenneco is a leading manufacturer and supplier of emission control, ride control systems and systems for light, plus commercial and specialty vehicle applications. The company is expected to report fourth-quarter 2017 results on Feb 9.
Allison Transmission Holdings, Inc. (ALSN - Free Report) has an Earnings ESP of +9.09% and a Zacks Rank #1.
Headquartered in Indianapolis, IN, Allison Transmission Holdings is a leading manufacturer of fully automatic transmissions for medium and heavy-duty commercial vehicles. The company is expected to report fourth-quarter 2017 results on Feb 14.
American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) has an Earnings ESP of +2.81% and a Zacks Rank #3.
Headquartered in Detroit, MI, American Axle & Manufacturing Holdings is a leading supplier of driveline, metal forming, powertrain, and casting technologies for automotive, commercial and industrial markets. The company is expected to report fourth-quarter 2017 results on Feb 16.
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