3 Auto Parts Stocks Poised to Beat Earnings
The disappointing financial results of automobile giants like
Ford Motor Co. (F) and General Motors Co. (GM) were expected,
based on the weak U.S. auto sales in the first two months of
2014, recall-related trouble faced by General Motors and the
lackluster guidance provided by Ford. Auto companies that
reported earnings up to Apr 25 have an average beat ratio of 50%
and median surprise of -0.3%. Moreover, their average earnings
are down 30.9% from the same period last year.
While these figures may not inspire confidence, they do not
imply that all auto companies will disappoint. In March, U.S.
auto sales recovered enough to offset the decline in the first
two months, leading to a 1% year-over-year increase during the
first quarter. Moreover, auto sales in Asia remained strong
during the quarter.
While safety recalls and harsh weather conditions in the U.S.
negatively affected auto manufacturers, auto parts manufacturers
performed well during the period. The severe winter boosted
demand for replacement of auto parts. Auto parts manufacturers
also benefited from the record high global automobile production
in the first quarter. The all-time high average age of vehicles
on U.S. roads is also resulting in demand for parts
Thus, it may be a good idea to look at some companies in the
auto sector that have the potential to beat earnings in their
The Way to Pick Right Stocks
The huge number of industry participants makes it difficult to
shortlist stocks that have the potential to beat earnings. This
is where the Zacks proprietary methodology comes in handy. It
helps one narrow down the list by looking at stocks that have the
combination of a favorable Zacks Rank - Zacks Rank #1 (Strong
Buy), 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. It helps in
picking out stocks that have high chances of surprising in their
next earnings announcement. Our research shows that for stocks
with this combination, the chance of a positive earnings surprise
is as high as 70%.
Here we have selected 3 auto stocks that have the right
combination of elements to report earnings beat this earnings
Advance Auto Parts Inc.
) holds a Zacks Rank #3 and has an Earnings ESP of +5.12%. The
Zacks Consensus Estimate for this auto parts company's
first-quarter earnings is $2.15 per share, which reflects an
expected year-over-year gain of 30.3%.
Advance Auto Parts has a history of outperforming earnings
estimates. The company delivered positive earnings surprises in
each of the trailing 4 quarters with an average beat of
Advance Auto Parts operates in the U.S. automotive aftermarket
industry and is primarily engaged in selling replacement parts
(excluding tires), accessories, maintenance items, batteries and
maintenance items for cars, vans, sport utility vehicles and
light trucks. The company is expected to report its first quarter
results on May 15.
) carries a Zacks Rank #3 with an Earnings ESP of +2.5%. The
Zacks Consensus Estimate for the company's first-quarter 2014
earnings is at 80 cents per share, an estimated increase of
23.59% over the first quarter of 2013.
BorgWarner delivered positive earnings surprises in the
trailing 4 quarters with an average beat of 7.36%. The earnings
beat streak is expected to continue in first-quarter 2014 as
well, driven by the company's efforts to improve operational
efficiency and manage costs along with the rising demand for
technology that improves fuel economy, emission standards and
performance of automobiles.
Michigan-based BorgWarner is a leading manufacturer of
powertrain products for the world's major automakers. Its largest
customers include Volkswagen AG (VLKAY) and Ford. The company is
expected to report its first quarter results on May 1.
Fox Factory Holding Corp
) carries a Zacks Rank #2 and has an Earnings ESP of +12.5%. The
Zacks Consensus Estimate for the company's first-quarter earnings
is pegged at 8 cents per share.
Fox Factory generated positive earnings surprises in the last
3 quarters with an average beat of 19.02%. The company is
expected to beat earnings when it releases its first-quarter
results on May 7.
Headquartered in Scotts Valley, CA, Fox Factory designs and
manufactures suspension products for mountain bikes, side-by-side
vehicles, on-road vehicles with off-road capabilities, off-road
vehicles, trucks, all-terrain vehicles, snowmobiles, specialty
vehicles and applications, and motorcycles.
Investing in companies with an earnings beat potential is a
good investment strategy for the short term. An earnings beat
will increase investors' confidence, which will lead to immediate
ADVANCE AUTO PT (AAP): Free Stock Analysis
BORG WARNER INC (BWA): Free Stock Analysis
FOX FACTORY HLD (FOXF): Free Stock Analysis
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