HARMAN International (HAR) Q4 Earnings: What's In Store?

HARMAN International Industries, Inc. (NYSE:HAR) is expected to report fourth-quarter fiscal 2016 results on Aug 4. Last quarter, it posted a negative earnings surprise of 5.56%. HARMAN has posted positive earnings surprises in three out of the trailing four quarters, resulting in an average positive earnings surprise of 2.70%.

Let’s see how things are shaping up for this announcement.

Factors at Play

HARMAN is one of the leading providers in the car infotainment space. Apart from audio equipment, Harman’s cloud platform and scalable technology are gaining popularity with a rise in the number of connected cars. In the past, the company has partnered with the likes of InterDigital (NASDAQ:IDCC) to develop a range of cutting-edge IoT services.

In the fourth quarter, the company extended its partnership with Alphabet’s (NASDAQ:GOOGL) Google to provide its audio modules for the latter’s upcoming modular smartphone, Ara. Apart from Ara, HARMAN and Google are also collaborating for another project ­– Soli – of the Google’s Advanced Technology and Projects Group (ATAP). HARMAN is working with ATAP for developing speakers that come with a built in Soli radar. We believe that these developments should boost the company’s top line to an extent this quarter.

However, a major concern for the company is the sluggishness in the U.S. auto market. This is because Harman is exposed to some serious customer concentration risks with its top five customers accounting for approximately half of its revenues and around 75% of its auto-related revenues.

In addition, rising competition (and the resulting pricing pressure) and weakness in its Professional Solutions segment remain headwinds.

Earnings Whispers

Our proven model does not conclusively show that Harman will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as you will see below.

Zacks ESP: Harman currently has a 0.00% ESP because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 1.52.

Zacks Rank: Harman has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stock to Consider

Here is a stock worth considering that, as per our model, has the right combination of elements to post an earnings beat this quarter:

U.S. Silica Holdings, Inc. (NYSE:SLCA) has an Earnings ESP of +8.70% and a Zacks Rank #2.