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Will Hitachi Ltd. (HTHIY) Disappoint this Earnings Season?

Zacks Equity Research

Hitachi Ltd. (HTHIY) is scheduled to release fourth-quarter 2014 results on Jul 31.

In the preceding quarter, Hitachi delivered a 0.36% positive earnings surprise. Let us see how things are shaping up for this announcement.

Factors to Impact Q2 Results

Hitachi is expected to benefit from an improving U.S. economy with higher employment and wage levels. In addition, Japan reported a modest economic recovery driven by rising exports and an overall improvement in consumer sentiment. The recovery was also aided by an important correction in Yen and the nation’s decision to host the 2020 Summer Olympic Games in Tokyo.

However, the company faces headwinds like persistent governmental finance issues and employment challenges in Europe. Further deterioration in India, Brazil and other economies, owing to currency protection and tighter monetary policies to control inflation, has increased uncertainty surrounding the global economic outlook.

Also, Hitachi has to continually invest in R&D and similar other value drivers that hedge against tough competition. This increases its operating costs and reduces its profitability to some extent.

Earnings Whispers

Our proven model does not conclusively show that Hitachi is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, #2 or #3  for this to happen. Unfortunately, this is not the case here as you can see below.

Zacks ESP: The Earnings ESP for Hitachi is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 32 cents.

 Zacks Rank: Hitachi carries a Zacks Rank #5 (Strong Sell). We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks That Warrant a Look

Here are a few asset managers that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Silicon Motion Technology Corp (SIMO) with an Earnings ESP of +12.90% and a Zacks Rank #1 (Strong Buy)

Fluor Corp. (FLR), with an Earnings ESP of +3.06% and a Zacks Rank #2 (Buy).

Nordson Corp. (NDSN) with an Earnings ESP of +1.77% and Zacks Rank #2 (Buy).

Read the Full Research Report on FLR
Read the Full Research Report on NDSN
Read the Full Research Report on SIMO
Read the Full Research Report on HTHIY

Zacks Investment Research