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Is a Beat in Store for General Motors (GM) in Q4 Earnings?

Zacks Equity Research

General Motors Company GM is set to report fourth-quarter and 2018 results on Feb 6, before the opening bell. In the last reported quarter, the company delivered a positive earnings surprise of 48.4%.

In fact, the company delivered a positive earnings surprise in three out of the trailing four quarters while missing estimates once. The average earnings surprise in the trailing four quarters was 21.8%. Further, long-term expected earnings growth for the company (over three to five years) is currently pegged at 8.5%.

In the past three months, shares of General Motors have outperformed the industry it belongs to. Over this time frame, shares of the company have increased 8.3% against the industry’s decline of 1.9%.

Let’s see how things are shaping up for this announcement.

General Motors Company Price and EPS Surprise

 

General Motors Company Price and EPS Surprise | General Motors Company Quote

Why a Positive Surprise is Likely in This Quarter

Our proven model shows that General Motors is likely to beat earnings estimates in this quarter. This is because a stock needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for increasing the odds of an earnings beat.

Earnings ESP: General Motors has an Earnings ESP of +11.39% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.35 and $1.21, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Motors currently carries a Zacks Rank #2.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

What’s Driving Better-Than-Expected Earnings?

In fourth-quarter 2018, General Motors reported a 2.7% decline in sales, with declines for Chevrolet, Cadillac and Buick brands. During the quarter, the largest automaker in the United States recorded declines for some of its more popular larger vehicles, including Chevrolet Suburban, Cadillac Escalade and GMC Yukon, all high-margin SUVs.

However, this automaker constantly strives to excel in its product and technology offerings, expand presence in China, and boost the GM Financial segment. Further, General Motors is undertaking several initiatives to make vehicles more advanced, safer and fuel efficient. It is presently focusing on the development of electric and autonomous vehicles.

For the soon-to-be-reported quarter, the Zacks Consensus Estimate for revenues of the General Motors North America (“GMNA”) segment is pegged at $27.3 billion. In third-quarter 2018, net sales and revenues of General Motors North America were $27.7 billion. Notably, in 2017, around 76.5% of the total revenues of the company were derived from the GMNA segment.

Other Stocks to Consider

Here are a few other auto stocks that too have the right combination of elements to deliver a beat this time around.

O’Reilly Automotive, Inc. ORLY has an Earnings ESP of +2.01% and a Zacks Rank of 3. The company is slated to report fourth-quarter 2018 results on Feb 6.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc. CMI has an Earnings ESP of +5.90% and a Zacks Rank of 3. The company is slated to report fourth-quarter 2018 results on Feb 6.

Wabco Holdings Inc. WBC has an Earnings ESP of +2.81% and it currently carries a Zacks Rank of #3. Its fourth-quarter 2018 results are slated to release on Feb 15.

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