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Meritor (MTOR) to Report Q4 Earnings: Is a Beat in Store?

Zacks Equity Research
Updated

Meritor, Inc. MTOR is set to report fourth-quarter and fiscal 2018 results before the opening bell on Nov 14.

In the last reported quarter, the company delivered a positive surprise of 14.1%. Per the earnings record, it beat estimates in all the trailing four quarters, with the average being 24%.

In the past six months, shares of Meritor have outperformed the industry it belongs to. The stock lost 16% compared with 24.3% decline recorded by the industry during the period.

Meritor, Inc. Price and EPS Surprise

 

Meritor, Inc. Price and EPS Surprise | Meritor, Inc. Quote

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

Is a Positive Surprise Likely?

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

Earnings ESP: The company has an Earnings ESP of +13.30% as the Most Accurate Estimate is pegged at 88 cents, higher than the Zacks Consensus Estimate of 78 cents. A positive ESP indicates that an earnings surprise is likely. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Meritor currently carries a Zacks Rank #3. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, 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 Earnings?

The company raised its fiscal 2018 guidance in the last reported quarter, driven by higher volume sales across all markets, leading to increased market share and new business wins. Also, frequent product launches that are developed per the evolving trends aid Meritor to sell more producs. For the fiscal year, sales are expected to be approximately $4.1 billion while adjusted earnings from continuing operations are anticipated within $2.9-$3 per share.

Meritor provided its updated global market outlook for fiscal 2018. North America’s truck market is projected to keep up with its pace of high demand for Class 8, as well as Class 5-7 trucks and trailers. The current production outlook for Class 8 is 300,000-310,000 units, while the same for Class 5-7 trucks is 240,000-250,000 units and 310,000-320,000 for trailers.

The company’s production levels for medium and heavy-duty trucks in other key markets that consist of Europe, South America, India and China have also been raised, driven by increasing demand.

Additionally, Meritor has already achieved two of its M2019 financial targets a year earlier than stipulated. The first target was generating EPS of $2.84, marking an 80% rise from the fiscal 2015 level. It also achieved its target to reduce net debt to adjusted EBITDA to less than 1.5x from 2.6x in fiscal 2015.

Other Stocks to Consider

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

CarMax, Inc. KMX has an Earnings ESP of +1.77% and a Zacks Rank #2 (Buy). The company is anticipated to report third-quarter fiscal 2019 financial figures on Dec 20.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Navistar International Corporation NAV has an Earnings ESP of +0.20% and a Zacks Rank of 3. The company’s fourth-quarter fiscal 2018 financial results are scheduled to be released on Dec 18.

BorgWarner Inc. BWA has an Earnings ESP of +0.03% and a Zacks Rank of 3. The company’s fourth-quarter 2018 financial results are anticipated to be announced on Feb 14.

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