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Auto Stocks Q4 Earnings: Key Predictions for BWA, GT, PAG

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Auto sector’s fourth-quarter earnings announcement is in full swing. Of the lot, a few important companies have already released earnings for the quarter ending Dec 31, 2017. On Feb 6, General Motors Company (GM - Free Report) and Cummins Inc. (CMI - Free Report) reported quarterly results. Both companies delivered an earnings beat.

Now, let’s assess the three important automakers namely BorgWarner Inc. (BWA - Free Report) , The Goodyear Tire & Rubber Company (GT - Free Report) and Penske Automotive Group, Inc. (PAG - Free Report) , slated to announce quarterly performance on Feb 8.

Per the latest Earnings Outlook, as of Jan 31, 185 companies under the S&P 500 category have already reported earnings. These companies recorded estimate beat ratios of 82.2% and 80% in earnings and revenues, respectively. As of the same date, 33.3% companies from the Auto sector have released financial numbers for the quarter.

In fourth-quarter 2017, earnings growth for auto manufacturers is expected to grow 10.3% on a year-over-year basis, whereas revenue is expected to decline 2.5% year-over-year. However, the S&P 500 companies are likely to witness 11.9% and 7.6% year-over-year growth in earnings and revenues, respectively, during the quarter.

With substantial freight and packages ready for transport, a spurt in demand for additional trucks is expected. However, rising interest rates and return of a huge number of late-model used cars are coming in the way of new vehicle sales.

Now, let’s take a look at the four auto companies scheduled to announce earnings figures on Feb 8.

We relied on the proven Zacks quantitative model, combining a favorable Zacks Rank #1 (Strong Buy) or 2 (Buy) or 3 (Hold) with a positive Earnings ESP, to predict the chances of earnings beat this quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Per our proprietary methodology, Earnings ESP shows the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that with an ideal combination of the two key ingredients — Zacks Rank and ESP — chances of a positive surprise are as high as 70% for the stocks lined up for an earnings release.

Michigan-based BorgWarner is one the leading manufacturers of powertrain products for major automakers. Its products cater light, medium and heavy-duty vehicles. Per our model,  BorgWarner is likely to beat on earnings this quarter as the company has an Earnings ESP of +0.84% and a Zacks Rank #3.

Last quarter, the company outpaced the Zacks Consensus Estimate. Additionally, the company delivered a positive earnings surprise in all the trailing four quarters. Further, it has a long-term earnings growth rate of 8.6%. (Read more: BorgWarner to Report Q4 Earnings: What's in Store?).

Goodyear is a world’s leading tire manufacturer. It also engages in tire retailing and undertakes automotive repairs and other services. Last quarter, the company pulled off a positive surprise. Further, in the last four quarters, it exceeded estimates thrice and missed once with an average beat of 7.5%.

The company has a long-term growth rate of 12.4%. Per our model, it seems that Goodyear is likely to beat on earnings this quarter as the company has an Earnings ESP of +4.92% and a Zacks Rank of 3. (Read more: Is a Beat in Store for Goodyear This Earnings Season?).

Bloomfield Hills, MI-based Penske Automotive offers automotive and commercial truck dealerships in the United States, Canada and Western Europe. Further, it engages in the distribution of commercial vehicles, diesel and gas engines, power systems and related parts and services in Australia and New Zealand. Last quarter, it came up with a positive surprise. Also, Penske Automotive surpassed expectations with an average beat of 29.21% in three of the trailing four quarters and reported in-line earnings on one occasion.

Per our model, it seems that Penske Automotive is also likely to beat estimates this time around. That is because it has an Earnings ESP of +0.84% and is a Zacks #3 Ranked player. The company has a long-term growth rate of 7.3%.

From the above analysis, it appears that all the three companies are likely to come up with an earnings beat in fourth-quarter 2017.

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