Harman International Industries, Inc. (HAR) is expected to report second-quarter fiscal 2015 results on Jan 29. Last quarter, it posted a positive earnings surprise of 16.96%. Notably, the company has posted positive earnings surprises in the trailing four quarter, resulting in an average earnings surprise of 10.66%.
Let’s see how things are shaping up for this announcement.
Factors at Play
Harman is expected to benefit from the growth in automotive production globally. Its tie ups with auto-makers like BMW, Fiat Chrysler Automobiles, Audi/Volkswagen and Toyota/Lexus are a significant revenue source.
Apart from audio equipment, Harman’s cloud platform and scalable technology are gaining popularity with the rise in numbers of connected cars. This, along with the company’s powerful brand portfolio, is a major growth driver.
However, the automotive market — contributes approximately 69% of Harman’s net sales — faces several challenges. The market is currently witnessing a certain amount of volatility primarily due to the economic downturn, which directly impacts the company’s results.
Harman is also exposed to significant customer concentration risks with its top four customers accounting for approximately half of its revenues. This is a concern as the loss of any one of these customers would significantly dent revenues. Also, the company does not have long-term contracts with these automakers, which is another cause of concern.
Earnings Whispers
Our proven model does not conclusively show that Harman is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here as you will see below.
Zacks ESP: Harman has an Earnings ESP of -2.31% as the Most Accurate estimate is pegged at $1.27 while the Zacks Consensus Estimate stands at $1.30.
Zacks Rank: Harman currently has a Zacks Rank #4 (Sell).
We caution against stocks with Zacks Ranks #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some companies that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Apple Inc. (AAPL), with an Earnings ESP of +2.33% and a Zacks Rank #2 (Buy).
Facebook Inc. (FB), with an Earnings ESP of +9.09% and a Zacks Rank #3 (Hold).
CDK Global, Inc. (CDK), with an Earnings ESP of +15.63% and a Zacks Rank #3.
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