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The Zacks Analyst Blog Highlights: General Motors, Ford, CarMax, Lear, Tesla, Harley-Davidson and AutoZone

Zacks Equity Research
New Strong Buy Stocks for April 30th

For Immediate Release

Chicago, IL –April 5, 2019 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: General Motors Company GM, Ford Motor Company F, CarMax Inc. KMX, Lear Corporation LEA, Tesla, Inc.’s TSLA, Harley-Davidson, Inc. HOG and AutoZone, Inc. AZO

Here are highlights from Thursday’s Analyst Blog:

Auto Stock Roundup: GM, F, TSLA & More

Auto giants in the United States released sales figures for March 2019. Like the first two months of 2019, the U.S. auto sales trajectory persistently declined in March. This uninterrupted fall in auto sales has placed automakers, which are already struggling with weakening conditions in other major global markets, in a tight spot. The sales decline was due to consumers abandoning passenger cars for larger and more-comfortable pickup trucks and SUVs as well as soaring vehicle prices and unfavorable interest rates.

Among the leading auto manufacturers, Detroit-based General Motors Company, which doesn’t report monthly sales anymore, witnessed 7% decline in vehicle sales for first-quarter 2019 from the prior-year quarter. Ford Motor Company is another auto manufacturer that doesn’t release monthly figures anymore. Per industry data, the company’s sales are projected to fall 5% year over year in March, followed by a 2% decline in the first quarter.

Recap of the Week’s Most Important Stories

1.    CarMax Inc. posted net earnings per share of $1.13 in fourth-quarter fiscal 2019 (ended Feb 28, 2019), up 68.7% from 67 cents in the year-ago period. Moreover, earnings surpassed the Zacks Consensus Estimate of $1.04. The company’s net earnings increased 57.6% year over year to $192.6 million.

Moreover, net sales and operating revenues in the reported quarter increased 5.7% year over year to $4.32 billion. However, the figure missed the Zacks Consensus Estimate of $4.39 billion. Total gross profit rose 11.7% year over year to $599.4 million.

During fourth-quarter fiscal 2019, CarMax’s used-vehicle sales rose 5.8% from the prior-year period to $3.6 billion as unit sales increased 5.6% to 180,207 vehicles. The average selling price of used vehicles rose 0.3% from the year-ago quarter to $19,978. Comparable store used-vehicle units sold rose 2.8% from the prior-year level. This performance reflects improved conversion, partially offset by lower store traffic.

Wholesale vehicle revenues rose 3.1% from a year ago to $543.8 million in the reported quarter. Units sold increased 3.7% year over year to 102,887 vehicles, courtesy of growth in store base. The average selling price of wholesale vehicles declined 1% from the prior-year quarter to $5,024.

Other sales and revenues increased 14.6% year over year. Moreover, the extended protection plan’s (EPP) revenues rose 19.9% from the year-ago level.

CarMax Auto Finance (“CAF”) reported a year-over-year increase of 2.6% in income to $103.7 million in the quarter under review, reflecting collective effects of 7.8% rise in average managed receivables and a slightly lower total interest margin percentage. (Read more: CarMax's Earnings Surpass Estimates in Q4, Rise Y/Y)

CarMax currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

2.    General Motors is set to sell the closed car factory in the southwestern city of Gunsan, South Korea, to the South Korea-based auto supplier, Myoungshin for 113 billion won ($99.5 million), per Reuters. Myoungshin, a unit of MS Autotech, affirmed that it will buy the land and buildings of the General Motors facility to undertake contract manufacturing of electric vehicles (EVs).

Notably, General Motors closed one of its four South Korea plants in late May and axed several workers. This move, which was in sync with the automaker’s strategy to restructure operations, eventually gained huge financial support from the South Korea government.

Per a provincial government release, Myongshin is part of a consortium, which, to start with, would invest 200 billion won on the factory. The plant will produce 50,000 EVs, starting from 2021 and 150,000 EVs in 2025.

Moreover, per the North Jeolla Province government, the electric car factory would create 900 jobs, and another 2,000 at suppliers and other firms. South Korea’s electric car supply chain and free trade deal with the United States and Europe will aid this plant. (Read more: General Motors to Sell Closed Car Factory in South Korea)

General Motors currently carries a Zacks Rank #2.

3.    Lear Corporation announced that it inked a definitive agreement to acquire Xevo Inc., the Seattle-based Tier-1 automotive software supplier. This acquisition is likely to combine e-commerce vehicle platform technology of Xevo with the Southfield, MI-based leading supplier of automotive seating and electrical systems, Lear’s proficiency in electronic systems. In other words, this is likely to broaden Lear’s connectivity offerings, with a leading-edge technology platform.

Presently, Xevo’s technology is available in more than 25 million vehicles located mainly in the United States. Moreover, there are considerable opportunities for expansion of Xevo’s technology in North America, Europe and Asia.

Nevertheless, per the deal, all outstanding shares of Xevo will be acquired by Lear for $320 million. The transaction, which is scheduled to close in second-quarter 2019, is likely to be executed through debt financing.

Over the next year, Lear plans to launch a number of programs within Seating and E-Systems segments. Its developmental programs and partnerships along with production contracts are expected to drive financials in 2019. The Xevo acquisition will advance Lear’s leadership position in reshaping the global automotive industry. This will allow Lear to enhance capabilities in software, services and data analytics. (Read more: Lear to Acquire Xevo to Expand Connectivity Offerings)

Lear currently carries a Zacks Rank #3 (Hold).

4.    Ford is set to introduce four plug-in hybrids and two battery-powered vehicles in a bid to recover from losses incurred in the European market, per Bloomberg. At the beginning of 2019, the U.S. automaker announced restructuring the business to recover money-losing regional operation. At present, automakers are struggling in Europe due to slackening vehicle sales and tightening emission regulations.

From the upgraded SUV line-up, Ford will offer Explorer in a PHEV variant, revamped Kuga plug-in hybrid and compact Puma in a mild-hybrid variant. The new Puma will be manufactured at its hub based in Craiova, Romania, and is expected to reach showrooms by the end of the year.

Beside SUVs, Ford will launch an all-electric Transit van for the commercial market by 2021. Further, a plug-in hybrid version of the Transit van will be available in the market this year.

Apart from upgraded model launches, the company is reviewing operations in Britain, if the country exits from the European Union without a deal. Ford operates two engine factories in Britain. Last month, the company announced that it was moving out of the Russia market, with three plant closures. Beside this, it plans to slash workforce in Germany and the U.K. This automaker currently employs roughly 54,000 people in Europe.

Apart from sluggish vehicle sales, mounting costs are hurting Ford’s profitability in the region. With an aim to reduce expenses, it is partnering with peer companies. In January, it announced that it collaborated with Volkswagen AG. Per the partnership, the companies will build commercial vans and pickups, and explore electric and autonomous technological developments.

Ford currently carries a Zacks Rank #3.

5.    Tesla, Inc.’s vehicle production and delivery numbers witnessed sequential declines of 10.9% and 31%, respectively, in the first quarter of 2019. It managed to produce roughly 77,100 vehicles — consisting of 62,950 Model 3, and 14,150 Model S and X. Out of the total delivered figure of 63,000 units, Tesla’s Model 3 accounted for 50,900 while Model S and X were 12,100.

During the quarter, this electric automaker struggled with Model 3 deliveries to Europe and China, owing to longer transit time. Nevertheless, several analysts anticipated the fall in deliveries as Tesla shifted to international markets with Model 3 for the first time. The company started delivering new Model 3 to China and Europe markets in January and February, amid a slowdown in demand in North America.

Tesla’s Model 3 shipments to international markets faced a few bumps in the last quarter, per Reuters. Misprinted labels delayed the shipments’ arrival in Shanghai while it faced unexpected challenges at the Belgian port of Zeebrugge.
Longer transit time to deliver in international markets will likely to hurt Tesla’s working capital. The company reported having 10,600 vehicles in transit at the end of the quarter compared with 1,900 in the fourth quarter of 2018.

Apart from managing transit time for international shipments, Tesla has to compete with Europe automakers that are launching several versions of electric vehicles, per Reuters.

Tesla currently carries a Zacks Rank #5 (Strong Sell).

Performance

Last week, all the stocks gained. Harley-Davidson, Inc. gained the maximum while Toyota gained the least.

In the past six months, AutoZone, Inc. has increased the most, whereas Harley-Davidson declined the most.

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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.


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