The third-quarter earnings season is in full swing. Within the Auto sector, a few companies have already released their earnings while the majority will report in the next few days. On Oct 23, PACCAR Inc. (PCAR - Free Report) and Harley-Davidson Inc. (HOG - Free Report) reported third-quarter earnings, wherein both the companies beat estimates.
Per the Earnings Preview, as of Oct 17, on a year-over-year basis, the auto sector’s earnings are expected to decline 4.2% while revenues are likely to gain 4.6%.
Year to date, favorable job market scenario has boosted demand for vehicles. The auto sector witnessed rising sales for larger and comfortable pickup trucks, sports utility vehicles (SUVs) and crossovers. However, this increase has been partially offset by a continuous decline in demand for traditional passenger cars.
Further, the ongoing trade spat, rising interest rates and higher vehicle prices are affecting auto sales. Additionally, over the past few months, many automakers have recalled vehicles in huge numbers. Repairing and replacing defective vehicles are elevating costs for the companies, thus, putting pressure on their profit margins. Moreover, huge investments in technological developments of vehicles and high raw material costs are hurting profit margins of auto manufacturers.
Now, let’s assess a few important automakers, including BorgWarner Inc. (BWA - Free Report) , LKQ Corporation (LKQ - Free Report) , Lear Corporation (LEA - Free Report) and Visteon Corporation (VC - Free Report) , which are slated to announce their quarterly numbers on Oct 25.
Per our proprietary methodology, a stock with a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP is likely to deliver a positive surprise. 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 Earnings ESP — chances of a positive surprise are as high as 70% for stocks lined up for an earnings release. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Michigan-based BorgWarner is one of the leading manufacturers of powertrain products for major automakers. Its products cater to light, medium and heavy-duty vehicles. In the last quarter, the company outpaced the Zacks Consensus Estimate. Additionally, it delivered a positive earnings surprise in all of the trailing four quarters. Further, it has a long-term earnings growth rate of 6.7%.
Per our model, BorgWarner is likely to beat on earnings this quarter as it has an Earnings ESP of +0.26% and a Zacks Rank #3. (Read more: Is a Beat in the Cards for BorgWarner in Q3 Earnings?)
You can see the complete list of today’s Zacks #1 Rank stocks here.
Chicago, IL-based LKQ Corporation is a provider of alternative and specialty parts to repair, and accessorize vehicles. In the last quarter, the company came up with an earnings beat. Further, in the last four quarters, it exceeded estimates twice and missed on the other two occasions, with an average beat of 0.8%. The company has a long-term growth rate of 15%.
Our proven model does not conclusively predict an earnings beat for the company. This is because it has an Earnings ESP of -1.24% and a Zacks Rank of 3. (Read more: LKQ Corporation’s Q3 Earnings: What is in Store?)
Southfield, MI-based Lear is a provider of automotive seating and electrical systems (E-Systems). Its primary customers consist of automotive original equipment manufacturers (OEMs). In the last reported quarter, the company delivered a positive earnings surprise of 0.8%. In fact, it surpassed earnings estimates in the trailing four quarters, recording an average beat of 3%.
Our proven model does not conclusively predict an earnings beat for the company. This is because it has an Earnings ESP of 0.00% and a Zacks Rank of 5 (Strong Sell).
Visteon engages in designing, engineering, and manufacturing of automotive systems and components for vehicle manufacturers. The company’s products include climate systems, powertrain control systems, engine induction systems and cockpit modules, among others.
In the last reported quarter, Visteon recorded an earnings miss of 8.7%. Further, in the last four quarters, it exceeded estimates twice and missed on the other two occasions, with an average beat of 4.3%. Further, the company has a long-term earnings growth rate of 6.7%.
Our proven model does not conclusively predict an earnings beat for the company. This is because it has an Earnings ESP of -3.51% and a Zacks Rank of 3.
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