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

The Goodyear Tire & Rubber Company (NASDAQ:GT) is scheduled to report fourth-quarter and fiscal 2017 earnings numbers on Feb 8 before the market opens. Last quarter, the tire manufacturer witnessed a positive surprise of 6%. Of the trailing four quarters, the company surpassed estimates in three and missed in one with an average beat of 7.5%.

In the last three months, shares of Goodyear have underperformed the industry it belongs to. The stock has gained 17.3% compared with the industry’s rally of 17.9% during the period.

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

What’s Driving Better-Than-Expected Results?

Goodyear invests in projects with high return rate. It is constructing a facility in Luxembourg in order to manufacture premium tires. Scheduled to open in 2019, the facility will enable the company to manufacture premium products, in line with increasing demand from the company’s growing customer base.

Also, the company is trying to boost its shareholder value. In October, it announced a quarterly dividend of 14 cents per share, registering 40% growth from the previous amount of 10 cents. Further, it undertakes share repurchase programs. During 2017-2020, the company plans to make a capital deployment of $3.5-$4 billion.

However, a competitive environment, weak demand and decline in operating income across all segments, are a few concerns for Goodyear.

The company anticipates operating income of approximately $1.5 billion for 2017, down from the previous guidance of $1.6-$1.65 billion.

For the soon-to-be-released quarterly results, the Zacks Consensus Estimate for net sales of Americas, the company’s largest geographical segment (constituting almost 55% of total revenues), is pegged at $2.06 billion in comparison to the third quarter’s actual sales of $2.04 billion.

For the second-largest geographical segment, Europe, Middle East and Africa (EMEA) (30.2%), the Zacks Consensus Estimate for net sales stands at $1.27 billion. While the third quarter’s actual figure for the EMEA segment net sales was $1.31 billion.

Further, the consensus mark for Asia-Pacific’s (14.5%) net sales in the fourth quarter stands at $605 million, an increase from $569 million recorded in the third quarter.

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 +12.00% as the Most Accurate estimate is pegged at 84 cents, higher than the Zacks Consensus Estimate of 75 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.

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:

Allison Transmission Holdings, Inc. (NYSE:ALSN) has an Earnings ESP of +10.40% and a Zacks Rank of 3. The company is expected to report fourth-quarter 2017 results on Feb 14. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) has an Earnings ESP of +2.81% and the company is a Zacks #3 Ranked player. Its fourth-quarter 2017 results are expected to be released on Feb 16.

Tenneco Inc. (NYSE:TEN) has an Earnings ESP of +1.92% and the company is a #3 Ranked player. Its fourth-quarter 2017 results are slated to be announced on Feb 9.

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