Will General Motors (GM) Earnings Surprise this Season?

Zacks

General Motors Co. (GM) is set to report second-quarter 2014 results on Jul 24, 2014. Last quarter, it posted a negative earnings surprise of 6.45%. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

General Motors reported sales of 2,505,889 vehicles globally in the second quarter of 2014. This highlights a year-over-year increase of 1.5%. The upside was driven by better sales in the large and profitable automobile markets of the U.S. and China. Sales in the U.S. augmented 7% while the same in China went up 8%. Also, the automaker’s sales in the first half of 2014 increased 1.4% to 4,921,928 vehicles.

However, General Motors has been facing the brunt of a delayed recall of 2.6 million vehicles with defective ignition switches. In addition, the company is recalling other vehicles in large numbers as well. Consequently, General Motors will incur repairing charges of around $1.2 billion in the second quarter. Moreover, strikes by component suppliers have compelled the company to temporarily halt production at its Port Elizabeth assembly plant in South Africa.

Earnings Whispers?

Our proven model does not conclusively show that General Motors is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here as you will see below.

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. General Motors’ Most Accurate estimate stands at 62 cents while the Zacks Consensus Estimate is pegged at 77 cents. Hence, the difference stands at -19.48% for the company.

Zacks Rank: General Motors’ Zacks Rank #3 (Hold) reduces the predictive power of ESP. When combined with -19.48% ESP, it makes surprise prediction difficult.

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

Other Stocks to Consider

Here are some companies you may want to consider as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Gentex Corp. (GNTX) with an earnings ESP of +2.08% and a Zacks Rank #1 (Strong Buy) will be reporting second-quarter 2014 earnings on Jul 24, 2014.

Meritor, Inc. (MTOR) has an earnings ESP of +6.67% and a Zacks Rank #2 (Buy). The company will be posting its second-quarter earnings on Jul 31, 2014.

Dana Holding Corporation (DAN) has an earnings ESP of +5.77% and a Zacks Rank #2. The company will release its second-quarter financial results on Jul 24, 2014.

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