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Ford (F) to Report Q2 Earnings: Will the Stock Disappoint?

Ford Motor Co. F is set to report second-quarter 2017 results on Jul 26 before the market opens.

Last quarter, Ford beat estimates by 14.71%. The automaker managed to beat earnings in two of the trailing four quarters, delivering an average positive earnings surprise of 4.74% during this period.

The long-term earnings per share growth (3–5 years) for the company is currently pegged at 12.27%.

Ford’ shares have lost 5% year to date, underperforming the 12.6% rally of the industry it belongs to.

Let’s see how things have shaped up for the upcoming announcement.

Ford Motor Company Price and EPS Surprise

Ford Motor Company Price and EPS Surprise | Ford Motor Company Quote

Factors Influencing this Quarter

Ford expects 2017 pre-tax profit to be around $9 billion, declining from $10.4 billion in 2016. The weak outlook can be attributed to higher investments in electrification, autonomy and mobility can. Also, the company expects Automotive segment operating cash flow to decline in 2017 from the 2016 levels. Adjusted earnings per share and automotive operating margin are also expected to be lower than 2016. Moreover, the automaker expects Ford Credit’s profits in 2017 to be about $1.5 billion, lower than the 2016 level of $1.9 billion. Given this backdrop, a stellar performance in second-quarter 2017 is not expected.

Sluggish demand for new cars in South America forced Ford to halt production in Venezuela for few months. In fact, the automaker expects to report losses in South America in 2017 as well. Much like a few of its peers, Ford has been recalling its vehicles regularly to fix safety issues. Frequent product recalls not only reduce consumers’ confidence in a brand, but also add to its expenses.

However, Ford is expanding its production capacity in many emerging markets to facilitate supply, cost reduction and manage transportation challenges. Also, efficient capital deployment, success of the One Ford plan, focus on autonomous vehicle development and a solid long-term outlook are some positives.

Earnings Whispers

Our proven model does not conclusively show an earnings beat for Ford 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. This is not the case here as you will see below.

Zacks ESP: Ford’s Earnings ESP is +9.09% because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 48 cents and 44 cents, respectively.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ford carries a Zacks Rank #5 (Strong Buy).

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

Stocks that Warrant a Look

Here are a few auto companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter.

Cummins Inc. CMI has an Earnings ESP of +3.1% and a Zacks Rank #2. The company is expected to report second-quarter 2017 results on Aug 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Horizon Global Corporation HZN has an Earnings ESP of +2.99% and a Zacks Rank #3. The company’s second-quarter 2017 financial results are expected to release on Aug 1.

Tenneco Inc. TEN has an Earnings ESP of +1.67% and a Zacks Rank #3. The company’s second-quarter 2017 financial results are expected to release on Jul 28.

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