Santander Consumer USA Holdings Inc. (SC) is slated to announce fourth-quarter and full year 2014 results on Feb 3, before the market opens.
Last quarter, Santander Consumer USA delivered earnings growth of nearly 69% on a year over year basis. Results improved on the back of top-line growth, partly offset by higher operating expenses. However, earnings came below the Zacks Consensus Estimate.
Notably, since its debut on Jan 23, 2014 on the New York Stock Exchange (NYSE), shares of this Dallas-based auto finance company are down roughly 29%. Will Santander Consumer USA be able to regain investors’ confidence on strong financial performance this quarter? Let's see how things have shaped up for this announcement.
Factors Influencing Q4 Results
As Santander Consumer USA primarily offers auto loans, its performance mainly depends on the overall health of the Auto Industry. Per NADA Industry Analysis, the U.S. light-vehicle sales rose more than 7% year over year to 4.1 million units in the quarter. Further, light-vehicle sales for 2014 grew 5.8% from the 2013 level to 16.4 million units, marking the highest sales since 2006 when 16.5 million units were sold.
Also, sales on a seasonally adjusted annualized rate (“SAAR”) basis reached 16.80 million in Dec 2014. For 2014, sales on SAAR basis were 16.43 million, up from 15.53 million in 2013. Hence, we believe that driven by a steady rise in auto sales, Santander Consumer USA should continue to witness an overall rise in revenues.
However, mounting expenses remain a concern. Santander Consumer USA expects operating expenses to remain elevated, owing to a significant increase in loan originations pertaining to Chrysler partnership, higher regulatory costs as well as a rise in other expenses involved with the act of going public. Consequently, we believe rising expenses will somewhat dampen the company’s bottom-line growth.
Also, provision for loan losses is anticipated to remain on the higher side as Santander Consumer USA will likely experience a rise in auto-loan origination. Further, the company projects net charge-off ratio and delinquency ratio to rise in the fourth quarter as customers are expected to spend more in holiday and vacation season.
Nonetheless, Santander Consumer USA’s activities during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate remained stable at 56 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that Santander Consumer USA 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 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Santander Consumer USA is -5.36%. This is because the Most Accurate estimate of 53 cents stands below the Zacks Consensus Estimate of 56 cents.
Zacks Rank: Santander Consumer USA’s Zacks Rank #2 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are a few stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Lazard Ltd. (LAZ) has an Earnings ESP of +1.91% and holds a Zacks Rank #3. It is expected to report on Feb 5.
Aon plc (AON) has an Earnings ESP of +1.08% and a Zacks Rank #3. It is slated to report results on Feb 6.
WisdomTree Investments, Inc. (WETF) has an Earnings ESP of +20.00% and carries a Zacks Rank #2. It is expected to report results on Feb 6.
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