Will Tesla (TSLA) Continue to Disappoint in Q3 Earnings?
Tesla Motors, Inc. TSLA is set to report third-quarter 2016 results on Oct 26. In the last quarter, this electric carmaker had posted a negative earnings surprise of 32.76%. Let us see how things are shaping up for this announcement.
Factors Influencing this Quarter
Tesla is actively working to boost production and delivery volumes. Production volume surged to 25,185 vehicles in the third quarter of 2016, which represents a 37% increase over the second quarter. The improving production capacity, along with attractive products and rapid international expansion, are helping boost the company’s sales.
As a result, Tesla delivered 24,500 vehicles in the third quarter, which is significantly higher than 14,402 units delivered in the second quarter. This should lead to considerable revenue growth in the quarter. The addition of revenues from the Tesla Energy business, launched in Apr 2015, should also aid the top line in the quarter to be reported. Further, in the third quarter, adjusted and reported automotive gross margins, excluding ZEV credits, are expected to improve by 2–3 percentage points, backed by cost reductions as well as better production efficiency of Model S and Model X.
However, despite increasing sales, Tesla remains a loss-making company due to high expenses. The company is expected to report losses in the third quarter as well. Moreover, operating expenses in the third quarter are expected to increase from the second quarter, as the company continues to expand its customer support infrastructure in addition to focusing on Model 3 development.
Earnings Whispers
Our proven model does not conclusively show that Tesla is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:
Zacks ESP: Tesla has an Earnings ESP of 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are both pegged at a loss of 64 cents.
TESLA MOTORS Price and EPS Surprise
TESLA MOTORS Price and EPS Surprise | TESLA MOTORS Quote
Zacks Rank: Tesla carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
The Goodyear Tire & Rubber Company GT, which is expected to report third-quarter 2016 results on Oct 28, has an Earnings ESP of +1.75% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Fox Factory Holding Corp FOXF has an Earnings ESP of +2.56% and a Zacks Rank #1. The company will report third-quarter 2016 financial numbers on Nov 2.
Magna International Inc. MGA has an Earnings ESP of +1.67% and a Zacks Rank #2 (Buy). The company is expected to release third-quarter 2016 results on Nov 3.
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