Is A Beat In Cards For Goodyear (GT) This Earnings Season?

The Goodyear Tire & Rubber Company (NASDAQ:GT) is scheduled to report first-quarter 2018 earnings numbers on Apr 25, before the market opens. Last quarter, the tire manufacturer witnessed a positive surprise of 30.3%. Of the trailing four quarters, the company surpassed estimates in three and missed in one, with an average beat of 12.7%.

Over a year, shares of Goodyear have underperformed the industry it belongs to. The stock has lost 23.8% compared with the industry’s decline of 25.1%.

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

The Goodyear Tire & Rubber Company Price and EPS Surprise

The Goodyear Tire & Rubber Company Price and EPS Surprise | The Goodyear Tire & Rubber Company Quote

Why a Likely Positive Surprise?

Our proven model shows that Goodyear is likely to beat on earnings this quarter. That is because it has the right combination of the two key ingredients — an Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

Zacks ESP: Goodyear has an Earnings ESP of +6.29% as the Most Accurate estimate is pegged at 47 cents, higher than the Zacks Consensus Estimate of 44 cents. A positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Goodyear carries a Zacks Rank of 3, which increases the predictive power of ESP. Thus, this combination raises the chances of an earnings beat.

We caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving Better-Than-Expected Results?

Goodyear invests in projects with a high rate of return. It is developing and launching a number of products and services to remain competitive in the market and boost sales. In March, the company offered a preview of its EfficientGrip Performance tire’s prototype. Developed to cater the electric vehicles segment, the tires are enabled with electric-drive technology and are sturdier than the regular ones. The specialized tires will be available in Europe by 2019.

Further, the company also displayed the recent advances made in its intelligent tire prototype, developed for fleet operators. The prototype helps to manage tire issues, faced by the fleet operators that are important for the business model as well as customers.

Based on these innovative product launches, the company anticipates achieving the segmental operating income target of $2-$2.4 billion in 2020. It aims to achieve profitable growth and reduce operating and structural costs by 2020.

Also, Goodyear pays regular quarterly dividends and frequent share repurchases with an aim to boost shareholder value. In January 2018, it declared a dividend of 14 cents, to be paid on Mar 1, 2018. During 2017-2020, it plans to make a capital deployment of $3.5-$4 billion.

However, competitive environment, increased raw-material costs and drop in worldwide volume sales are a few concerns for Goodyear.

For the soon-to-be-released quarterly results, the Zacks Consensus Estimate for net sales of Americas, which is the company’s largest geographical segment (constituting almost 53.4% of total sales in 2017), is pegged at $2 billion in comparison with the fourth quarter’s actual sales of $2.18 billion.

For the second-largest geographical segment, Europe, Middle East and Africa (EMEA) (32.1%), the Zacks Consensus Estimate for net sales stands at $1.24 billion. While the fourth quarter’s net sales were $1.26 billion for the EMEA segment.

Further, the consensus mark for Asia-Pacific’s (14.5%) net sales in the first quarter stands at $514 million, a decline from $623 million recorded in the fourth quarter.

Other Stocks to Consider

Here are a few other stocks worth considering from the same space, with the right combination of elements to outpace earnings estimates this time around:

BorgWarner Inc. (NYSE:BWA) has an Earnings ESP of +1.33% and a Zacks Rank #2 (Buy). Its first-quarter 2018 results are expected to be released on Apr 26. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Autoliv, Inc. (NYSE:ALV) has an Earnings ESP of +1.74% and has a Zacks Rank of 3. The company is expected to report first-quarter 2018 results on Apr 27.

Cummins Inc. (NYSE:CMI) has an Earnings ESP of +0.49% and is a #2 Ranked player. Its first-quarter 2018 results are slated to be announced on May 1.

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