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Cooper Tire (CTB) Q1 Earnings: Another Beat in the Cards?

Zacks Equity Research
Updated

Cooper Tire & Rubber Co. CTB is set to report first-quarter 2017 results before the markets opens on Feb 17. In the last quarter, the tire manufacturer posted a positive earnings surprise of 37.63%. The company has beat estimates in all four trailing quarters, with an average positive surprise of 16.07%.

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

Why a Likely Beat?

Our proven model shows that Cooper Tire has the right combination of two key ingredients to surprise earnings.

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Earnings ESP for Cooper Tire is currently pegged at +14.49%, as the Most Accurate estimate stands at 79 cents per share and the Zacks Consensus Estimate is pegged at 69 cents. This is a major indicator of a likely positive earnings surprise for the company. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

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Zacks Rank: Cooper Tire carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1 (Strong Buy), #2 (Buy) and #3 have a significantly higher chance of posting an earnings beat.

Conversely, Sell-rated stocks (#4 and #5) should never be considered going into an earnings announcement, especially when the company is seeing a negative estimate revisions.

The combination of Cooper Tire’s Zacks Rank #3 and ESP of +14.49% makes us reasonably confident of an earnings beat on Apr 19. 

Factors to Consider

Cooper Tire continues to develop great products with superior design and functionality to satisfy market demand in all regions. The company’s focus on improving its business operations has also helped improve earnings. Moreover, it is focusing on expansion in Latin America. The company has been developing products specifically for the region and even opened a new sales office in Sao Paulo, Brazil, in 2016. This will help local distributors and dealers in establishing the Cooper brands in the region.

Cooper Tire expects operating margin in 2017 at the high end of the previously announced mid-term target of 8% to 10%. The first half of the year is expected to see margins at the low end of the guidance. The company expects global unit volumes from each of its segments to increase in 2017. It plans to reduce its manufacturing costs through increased automation in production facilities and consolidation of product family.

Cooper Tire has outperformed the Zacks categorized Rubber-Tires industry in the last three months. The company’s share price rose 18% over this period compared with a 13.1% increase recorded by the industry.

However, Cooper Tire is exposed to volatility in commodity costs, which can impact profitability. Commodities with highly volatile prices include natural rubber, chemicals, carbon black, steel reinforcements and synthetic rubber. Cooper Tire expects raw material costs in the first half of 2017 to increase 25% year over year. The company is also likely to see an increase in cost for both synthetic and natural rubber.

Furthermore, the company is facing currency headwinds (as seen in 2016), which may continue to weigh on its sales in the to-be-reported quarter.

Stocks to Consider

Here are some other 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 too:

Visteon Corporation VC has an Earnings ESP of +5.8% and a Zacks Rank #1. The company’s first-quarter results will be released on Apr 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ferrari N.V. RACE has an Earnings ESP of +3.77% and a Zacks Rank #3. The company’s first-quarter financial results are expected to be released on May 4.

General Motors Company GM has an Earnings ESP of +3.5% and a Zacks Rank #3. The company is scheduled to report first-quarter financial numbers on Apr 28.

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General Motors Company (GM): Free Stock Analysis Report
 
Visteon Corporation (VC): Free Stock Analysis Report
 
Ferrari N.V. (RACE): Free Stock Analysis Report
 
Cooper Tire & Rubber Company (CTB): Free Stock Analysis Report
 
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