We expect Harman International Industries, Inc. (HAR) to beat expectations when it reports third quarter fiscal 2014 results on May 1. In the second quarter, the company posted a positive earnings surprise of 11.2%. Moreover, the company has posted an average positive earnings surprise of 13.6% over the past four quarters.
Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that Harman is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Earnings Surprise Prediction or Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +2.00%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #3 (Hold): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings. The sell rated stocks (#4 and #5) should never be considered going into an earnings announcement.
The combination of Harman’s Zacks Rank #3 and +2.00% ESP makes us very confident in looking for a positive earnings beat on May 1.
What is Driving the Better-Than-Expected Earnings?
Harman’s new manufacturing capacities, growing product pipeline, solid patent portfolio, new awards as well as product launches will boost the top line and profitability going forward.
Harman continues to win new business awards. In the second quarter, the company’s Infotainment division won customer awards worth $725.0 million from the likes of VW Group, Chang’an, Geely, Yamaha, Suzuki, BMW, and Jaguar/Land Rover.
The company launched car audio systems in several vehicles, including a Lexicon system in the Hyundai Genesis and a JBL system in the Toyota (TM) Highlander. Moreover, the recently announced partnerships with Softbank, Sprint Corp. (S), Trikomsel and Brightstar will expand Harman’s market share, going forward.
Furthermore, Harman continues to expand through its partnerships with the likes of Apple (AAPL). We believe that the new restructuring program will significantly improve profitability in the near term. This will provide Harman a competitive edge over the likes of Sony Corp. (SNE) going forward.
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