Harman International Industries, Inc. HAR is expected to report fourth-quarter and fiscal 2015 results on Aug 4. Last quarter, it posted a negative earnings surprise of 4.69%. Harman has posted positive earnings surprises in three out of the trailing four quarters, resulting in an average positive earnings surprise of 13.37%.
Let’s see how things are shaping up for this announcement.
Factors at Play
Harman is expected to benefit from growing automotive production globally in the fourth quarter. Its tie-ups with auto-makers BMW, Fiat Chrysler Automobiles N.V. FCAU, 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 a rise in the number of connected cars. Along with the company’s powerful brand portfolio, this is expected to drive revenues.
However, the automotive market from which Harman generates approximately 69% of net sales is not without challenges. There is currently a certain amount of volatility here, primarily due to the economic downturn, which is likely to hurt results in the to-be-reported quarter.
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 impact revenues. These automakers do not have any long-term contract with the company and therefore the termination of any contract would pose difficulties.
Earnings Whispers
Our proven model does not conclusively show that Harman is likely to beat earnings this quarter. This 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 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at $1.28.
Zacks Rank: Harman currently has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 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 you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
SunEdison Inc. SUNE, with an Earnings ESP of +8.89% and a Zacks Rank #3 (Hold).
Amtech Systems Inc. ASYS, with an Earnings ESP of +8.00% and a Zacks Rank #3.
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