The Auto-Tires-Trucks sector is more than halfway through the Q4 earnings season. The picture thus far has been pretty decent despite supply chain issues and economic worries. So far, seven S&P 500 sector components — Tesla, Ford, General Motors, PACCAR, O’Reilly Automotive, Cummins and BorgWarner — have reported quarterly numbers. While Ford and Cummins failed to beat earnings estimates, the other five companies managed to pull off a surprise.
Per the 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.
With a host of companies still left to release fourth-quarter 2022 results, we have identified, with the help of the Zacks Stock Screener, a few auto players — Allison Transmission Holdings ALSN, Genuine Parts Company GPC and Lucid Group LCID — which are positioned to outshine the Zacks Consensus Estimate in fourth-quarter earnings. Before we discuss the companies, let’s take a look at the factors shaping the quarterly performance of automotive companies.
Factors at Play
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, the 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.
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
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 +2.23% and a Zacks Rank #2. This auto equipment provider is scheduled to release fourth-quarter results today. 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 and EPS Surprise
Allison Transmission Holdings, Inc. price-eps-surprise | Allison Transmission Holdings, Inc. Quote
Lucid: Lucid manufactured 3,493 vehicles in the fourth quarter of 2022 at its manufacturing facility in Arizona. This was a new record and the figure was up 53% sequentially. Thanks to the solid production during the three months that ended Dec 31, the company surpassed its 2022 output target of 6000-7000 vehicles. During the quarter under discussion, it delivered 1,932 vehicles, marking a jump of 38.2% from the third quarter of 2022. Robust customer demand for Lucid Air is likely to have boosted fourth-quarter revenues.
Lucid has an Earnings ESP of +3.90% and a Zacks Rank #2. This EV maker is scheduled to release fourth-quarter results on Feb 22. The Zacks Consensus Estimate for Lucid’s to-be-reported quarter’s loss and revenues is pegged at 39 cents per share and $290 million, respectively. LCID surpassed earnings estimates in two of the trailing four quarters for as many misses, with the average surprise being 11.2%.
Lucid Group, Inc. Price and EPS Surprise
Lucid Group, Inc. Price and EPS Surprise
Lucid Group, Inc. price-eps-surprise | Lucid Group, Inc. Quote
Genuine Parts: The increase in the average age of vehicles (12.2 years according to IHS Markit data) is likely to have positively impacted sales of Genuine Parts’ 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 GPC’s revenues. Encouragingly, the Zacks Consensus Estimate for the firm’s fourth-quarter revenues from the Automotive and Industrial segments is pegged at $3,281 million and $1,997 million, indicating a rise from $3,190 million and $1,613 million, respectively, in the previous-year quarter.
Genuine Parts has an Earnings ESP of +5.37% and a Zacks Rank #2. This auto replacement parts provider is scheduled to release fourth-quarter results on Feb 23. The Zacks Consensus Estimate for GPC’s to-be-reported quarter’s earnings and revenues is pegged at $1.89 per share and $5.33 billion, respectively. Genuine Parts surpassed earnings estimates in the trailing four quarters, with the average surprise being 9.84%.
Genuine Parts Company Price and EPS Surprise
Genuine Parts Company Price and EPS Surprise
Genuine Parts Company price-eps-surprise | Genuine Parts Company Quote
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