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We are entering the peak of the fourth-quarter earnings season for the Auto-Tires-Trucks sector and the picture thus far looks pretty decent despite supply chain issues and economic worries that the space is grappling with. So far this earnings season, five S&P sector components — namely Tesla, PACCAR, General Motors, Ford and Cummins have come up with quarterly numbers. Tesla, PACCAR and General Motors not only managed to pull off a comprehensive beat but also witnessed year-over-year growth in the top and the bottom lines. Meanwhile, Ford and Cummins missed earnings estimates but witnessed year-over-year growth in profits and sales.
With the help of the Zacks Stock Screener, we have identified a few auto players — Allison Transmission Holdings (ALSN - Free Report) , LKQ Corp (LKQ - Free Report) , Rivian Automotive (RIVN - Free Report) — which are positioned to outshine the Zacks Consensus Estimate in fourth-quarter earnings.
What’s Shaping the Q4 Earnings Season for Auto Stocks?
The fourth quarter of 2022 was a mixed bag for the auto space, with some automakers witnessing a year-over-year increase in the number of vehicles sold while others saw a decline. In general, what aided the industry was the gradual abatement of chip woes and a slight improvement in supply chain systems. As such, inventory levels were on the rise. Inventory levels in December were more than one million units for the third consecutive month, per J.D. Power and LMC Automotive. Per TrueCar, the total new light-vehicle inventory, including fleet and commercial vehicles, totaled 1.8 million in December 2022, up from 1.1 million recorded in December 2021.
Despite economic uncertainty, demand for vehicles largely managed to show resilience during the last three months of 2022. The rising deliveries of new energy vehicles (including all-electric, hybrids and fuel-cell) are expected to have fueled revenues. However, for the less-affluent and subprime consumers, the rising cost of financing is expected to have played spoilsport. Per estimates of J.D. Power and LMC Automotive, average interest rates for new vehicle loans were up around 250 basis points from the year-ago levels. High interest rates eat away vehicle buyers' willingness and ability to purchase. This may have limited revenues to some extent.
As for the average price of vehicles, used car prices are on a decline, while new car prices during the quarter under discussion have remained high. High new vehicle prices are likely to have offset commodity cost inflation partially. High costs of raw materials, manufacturing inefficiency, rising freight and fuel costs may have limited margins.
Per the latest Earnings Trend report dated Feb 1, the auto sector’s earnings for Q4 are expected to grow 62.1% on a year-over-year basis. As for revenues, they are estimated to rise 21.4% year over year.
Picking Potential Winners
While it is not possible to be sure about which companies are well positioned to beat earnings estimates, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
Our research shows that for stocks with the abovementioned combination, the chances of an earnings beat are as high as 70%.
Our Choices
Below we list three auto stocks that have the right mix of elements to pull off a beat this earnings season.
Allison: Strategic buyouts and frequent product launches are likely to aid Allison’s upcoming results. FracTran, TerraTran and 3414 Regional Haul Series along with Allison’s eGen Power portfolio are likely to have secured business wins, thereby aiding fourth-quarter results. The Zacks Consensus Estimate for revenues from ALSN’s North America On-Highway segment is pegged at $327 million, up from $281 million generated in the fourth quarter of 2021. The company’s upbeat 2022 projections also spark optimism for the upcoming quarter’s results.
Allison has an Earnings ESP of +3.06% and a Zacks Rank #3. This auto equipment provider is scheduled to release fourth-quarter results on Feb 15. The Zacks Consensus Estimate for Allison’s to-be-reported quarter’s earnings and revenues is pegged at $1.21 per share and $676 million, respectively. ALSN surpassed earnings estimates in three of the trailing four quarters and missed on the other, with the average surprise being 10.3%.
Allison Transmission Holdings, Inc. Price and EPS Surprise
LKQ: The increase in the average age of vehicles (12.2 years according to IHS Markit data) is likely to have positively impacted sales of LKQ’s products. For the smooth functioning of aging vehicles, customers have been spending heavily to replace any faulty parts and components. This is expected to have boosted LKQ’s revenues. The firm’s upcoming results are anticipated to reflect benefits from pricing initiatives in North America and restructuring efforts in Europe.
LKQ has an Earnings ESP of +3.78% and a Zacks Rank #3. This auto replacement parts provider is scheduled to release fourth-quarter results on Feb 23. The Zacks Consensus Estimate for LKQ’s to-be-reported quarter’s earnings and revenues is pegged at 84 cents per share and $3.01 billion, respectively. LKQ surpassed earnings estimates in the trailing four quarters, with the average surprise being 8%.
Rivian: Rivian delivered 8,054 vehicles in the fourth quarter of 2022. It produced 10,020 vehicles at its manufacturing facility in Normal, IL during the three months ended Dec 31, 2022. The production and delivery numbers witnessed an uptick from the third-quarter 2022 levels. In the third quarter of 2022, the company produced 7,363 vehicles and delivered 6,584 vehicles.
Rivian has an Earnings ESP of +2.93% and a Zacks Rank #3. This electric vehicle maker is scheduled to release fourth-quarter results on Feb 28. The Zacks Consensus Estimate for Rivian’s to-be-reported quarter’s loss and revenues is pegged at $1.88 per share, 23% narrower year over year. The consensus mark for revenues is pegged at $710.8 million, up a whopping 1,217% year over year. RIVN surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 12.7%.
Image: Bigstock
3 Auto Stocks Poised to Deliver Q4 Earnings Beat
We are entering the peak of the fourth-quarter earnings season for the Auto-Tires-Trucks sector and the picture thus far looks pretty decent despite supply chain issues and economic worries that the space is grappling with. So far this earnings season, five S&P sector components — namely Tesla, PACCAR, General Motors, Ford and Cummins have come up with quarterly numbers. Tesla, PACCAR and General Motors not only managed to pull off a comprehensive beat but also witnessed year-over-year growth in the top and the bottom lines. Meanwhile, Ford and Cummins missed earnings estimates but witnessed year-over-year growth in profits and sales.
With the help of the Zacks Stock Screener, we have identified a few auto players — Allison Transmission Holdings (ALSN - Free Report) , LKQ Corp (LKQ - Free Report) , Rivian Automotive (RIVN - Free Report) — which are positioned to outshine the Zacks Consensus Estimate in fourth-quarter earnings.
What’s Shaping the Q4 Earnings Season for Auto Stocks?
The fourth quarter of 2022 was a mixed bag for the auto space, with some automakers witnessing a year-over-year increase in the number of vehicles sold while others saw a decline. In general, what aided the industry was the gradual abatement of chip woes and a slight improvement in supply chain systems. As such, inventory levels were on the rise. Inventory levels in December were more than one million units for the third consecutive month, per J.D. Power and LMC Automotive. Per TrueCar, the total new light-vehicle inventory, including fleet and commercial vehicles, totaled 1.8 million in December 2022, up from 1.1 million recorded in December 2021.
Despite economic uncertainty, demand for vehicles largely managed to show resilience during the last three months of 2022. The rising deliveries of new energy vehicles (including all-electric, hybrids and fuel-cell) are expected to have fueled revenues. However, for the less-affluent and subprime consumers, the rising cost of financing is expected to have played spoilsport. Per estimates of J.D. Power and LMC Automotive, average interest rates for new vehicle loans were up around 250 basis points from the year-ago levels. High interest rates eat away vehicle buyers' willingness and ability to purchase. This may have limited revenues to some extent.
As for the average price of vehicles, used car prices are on a decline, while new car prices during the quarter under discussion have remained high. High new vehicle prices are likely to have offset commodity cost inflation partially. High costs of raw materials, manufacturing inefficiency, rising freight and fuel costs may have limited margins.
Per the latest Earnings Trend report dated Feb 1, the auto sector’s earnings for Q4 are expected to grow 62.1% on a year-over-year basis. As for revenues, they are estimated to rise 21.4% year over year.
Picking Potential Winners
While it is not possible to be sure about which companies are well positioned to beat earnings estimates, our proprietary methodology — Earnings ESP — makes it relatively simple. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. Earnings ESP shows the percentage difference between the Most Accurate Estimate and the Zacks Consensus Estimate.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Our research shows that for stocks with the abovementioned combination, the chances of an earnings beat are as high as 70%.
Our Choices
Below we list three auto stocks that have the right mix of elements to pull off a beat this earnings season.
Allison: Strategic buyouts and frequent product launches are likely to aid Allison’s upcoming results. FracTran, TerraTran and 3414 Regional Haul Series along with Allison’s eGen Power portfolio are likely to have secured business wins, thereby aiding fourth-quarter results. The Zacks Consensus Estimate for revenues from ALSN’s North America On-Highway segment is pegged at $327 million, up from $281 million generated in the fourth quarter of 2021. The company’s upbeat 2022 projections also spark optimism for the upcoming quarter’s results.
Allison has an Earnings ESP of +3.06% and a Zacks Rank #3. This auto equipment provider is scheduled to release fourth-quarter results on Feb 15. The Zacks Consensus Estimate for Allison’s to-be-reported quarter’s earnings and revenues is pegged at $1.21 per share and $676 million, respectively. ALSN surpassed earnings estimates in three of the trailing four quarters and missed on the other, with the average surprise being 10.3%.
Allison Transmission Holdings, Inc. Price and EPS Surprise
Allison Transmission Holdings, Inc. price-eps-surprise | Allison Transmission Holdings, Inc. Quote
LKQ: The increase in the average age of vehicles (12.2 years according to IHS Markit data) is likely to have positively impacted sales of LKQ’s products. For the smooth functioning of aging vehicles, customers have been spending heavily to replace any faulty parts and components. This is expected to have boosted LKQ’s revenues. The firm’s upcoming results are anticipated to reflect benefits from pricing initiatives in North America and restructuring efforts in Europe.
LKQ has an Earnings ESP of +3.78% and a Zacks Rank #3. This auto replacement parts provider is scheduled to release fourth-quarter results on Feb 23. The Zacks Consensus Estimate for LKQ’s to-be-reported quarter’s earnings and revenues is pegged at 84 cents per share and $3.01 billion, respectively. LKQ surpassed earnings estimates in the trailing four quarters, with the average surprise being 8%.
LKQ Corporation Price and EPS Surprise
LKQ Corporation price-eps-surprise | LKQ Corporation Quote
Rivian: Rivian delivered 8,054 vehicles in the fourth quarter of 2022. It produced 10,020 vehicles at its manufacturing facility in Normal, IL during the three months ended Dec 31, 2022. The production and delivery numbers witnessed an uptick from the third-quarter 2022 levels. In the third quarter of 2022, the company produced 7,363 vehicles and delivered 6,584 vehicles.
Rivian has an Earnings ESP of +2.93% and a Zacks Rank #3. This electric vehicle maker is scheduled to release fourth-quarter results on Feb 28. The Zacks Consensus Estimate for Rivian’s to-be-reported quarter’s loss and revenues is pegged at $1.88 per share, 23% narrower year over year. The consensus mark for revenues is pegged at $710.8 million, up a whopping 1,217% year over year. RIVN surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average negative surprise being 12.7%.
Rivian Automotive, Inc. Price and EPS Surprise
Rivian Automotive, Inc. price-eps-surprise | Rivian Automotive, Inc. Quote
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