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Is a Beat in the Cards for Volvo (VLVLY) in Q3 Earnings?

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AB Volvo (VLVLY - Free Report) is set to release third-quarter 2018 earnings on Oct 19. In the last reported quarter, the company delivered a positive surprise of 44.4%. In the trailing four quarters, it missed estimates once, leading to an average beat of 14.6%.

In the past three months, shares of Volvo have outperformed the industry it belongs to. The stock has slumped 3% compared with the industry’s decrease of 19.1% during the period.

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

AB Volvo Price and EPS Surprise


Why is a Positive Surprise Likely?

Our proven model shows that Volvo is likely to beat earnings estimates this quarter. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for increasing the odds of an earnings beat.

Earnings ESP: Earnings ESP for Volvo is +4.23% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 37 cents and 36 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Volvo currently carries a Zacks Rank #1, which increases the predictive power of ESP. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

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

What’s Driving Better-Than-Expected Earnings

During the soon-to-be-reported quarter, demand for trucks in Europe and North America remained at peak, similar to the last-reported quarter. This augmentation can be attributed to good economic growth, which led to increased freight demand. A similar trend was witnessed in other parts across the globe as well. In the third quarter of 2018, this strong demand is anticipated to be favorable for the truck seller, Volvo.

The company embarks on investments to develop products and technologies to add competitive edge. During the third quarter, the company announced that it will introduce all-electric truck demonstrators in California by 2019. Further, in 2020, the trucks will be commercialized in North America. This partnership with California’s South Coast Air Quality Management District (SCAQMD) will enable Volvo to offer products for sustainable transportation.

Apart from trucks, the company also offers buses across the globe, including all-electric and electric hybrid buses. In July, Volvo received an order for 30 all-electric buses from Gothenburg, Sweden. Prior to this, the company sold e-buses to customers in many countries, which include — Netherlands, Oslo, Britain, Denmark, Luxemburg, Norway, Poland, Singapore and Sweden.

Moreover, the company has a strong financial position. In the first half of 2018, its net financial position was SEK 13.7 billion. A strong cash flow allows the company to return value to its shareholders through dividend payments and invest in technological developments for sustainable growth.

Other Stocks to Consider

Here are a few other stocks worth considering from the same space, with the right combination of elements to outpace earnings estimates this time around:

PACCAR Inc. (PCAR - Free Report) has an Earnings ESP of +0.62% and a Zacks Rank of 3. Its third-quarter 2018 results are expected to be released on Oct 23.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc. (CMI - Free Report) has an Earnings ESP of +1.73% and a Zacks Rank of 3. The company’s third-quarter 2018 financial results are scheduled to be released on Oct 30.

Advance Auto Parts, Inc. (AAP - Free Report) has an Earnings ESP of +2.85% and has a Zacks Rank of 1. The company is expected to report third-quarter fiscal 2018 results on Nov 13.

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