We expect Mohawk Industries, Inc. MHK to beat expectations when it reports its third-quarter 2015 results on Nov 5.
Last quarter, it posted a positive surprise of 3.07%. The company has beaten earnings estimates in all of the past four quarters with an average beat of 2.94%.
Why a Likely Positive Surprise?
Our proven model shows that Mohawk Industries is likely to beat earnings estimates because it has the right combination of two key ingredients.
Zacks ESP: Mohawk Industries currently has an Earnings ESP, of +1.33%. This is because the Most Accurate estimate stands at $3.05, while the Zacks Consensus Estimate is pegged lower at $3.01. This indicates a likely positive surprise for the company this quarter.
Zacks Rank: Mohawk Industries’ carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 and 3 have a significantly higher chance of beating estimates.
On the other hand, 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.
The combination of Mohawk Industries’ Zacks Rank #1 and +1.33% ESP makes us confident of a positive surprise on Nov 5.
What's Driving the Better-than-Expected Earnings?
Mohawk’s products are enjoying strong demand in the U.S. market as the economy continues to improve, strengthening both the residential and commercial flooring markets in the near term.
Moreover, the company expects improved performance in Mexico and most of Europe (except Russia). However, currency headwinds will hurt the company’s international sales and margins in the third quarter 2015.
In the third quarter, the company would have also faced headwinds in the form of start-up costs related to its capital investments, including two new LVT plants, a ceramic plant and major upgrades.
For the third quarter, adjusted earnings per share (excluding the impact of restructuring charges and new acquisitions) are expected within the $2.91–$2.99 range.
Other Stocks to Consider
Here are some other companies from the consumer discretionary sector that can be considered as our model shows that they have a favorable combination of elements:
Michael Kors Holdings Limited KORS with an Earnings ESP of +3.37% and a Zacks Rank #3 (Hold).
CBS Corporation CBS, with an Earnings ESP of +1.23% and a Zacks Rank #3.
Churchill Downs Inc. CHDN with an Earnings ESP of +6.38% and a Zacks Rank #3.
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