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Will CARZ ETF Gain Despite Mixed Auto Earnings?

The automobile, tires, trucks sector has come up with mixed results this reporting season. Notably, 66.7% of the S&P automobile companies beat on earnings and 100% surpassed the revenues. Moreover, earnings rose 16.5% year over year and revenues were up 6.3%, as reported by the Earnings Trends issued on Feb 16.

– Zacks

The coronavirus vaccine rollout is gradually helping control the outbreak’s spread across the globe. Accordingly, the global demand and economic growth levels are on the path of recovery from the pandemic-led slump. Thus, the U.S. automobile sector has been attracting investor attention as the gradual reopening of U.S. and global economies highlights brighter prospects. Vehicle demand has seen a boost, courtesy of the growing inclination toward personal mobility and easier credit conditions. Electric vehicles (EVs) are seeing greater popularity with each passing day and are likely to brighten the prospects of automakers.

However, U.S. consumers are feeling the heat of the continuously rising inflation levels. The latest disappointing preliminary consumer sentiment readings for early February that have slipped to the lowest level in more than a decade highlight the same. The University of Michigan’s preliminary consumer sentiment dropped to 61.7 in early February from a final reading of 67.2 last month. The metric, which witnessed the lowest level since October 2011, lagged the market forecast of a slight rise to 67.5, per the Reuters survey on economists.

Against this backdrop, we take a look at some big automobile earnings releases and check if these can impact ETFs exposed to the sector.

Automobile ETF in Focus

Given the current scenario, it is prudent to discuss the following ETF that has relatively higher exposure to the major players in the space:

First Trust S-Network Future Vehicles & Technology ETF CARZ

The investment objective of First Trust S-Network Future Vehicles & Technology ETF is to seek investment results that correspond generally to the price and yield (before the Fund’s fees and expenses) of an equity index called the S-Network Electric & Future Vehicle Ecosystem Index.

First Trust NASDAQ Global Auto ETF comprises 99 holdings. CARZ’s AUM is $73.3 million and expense ratio, 0.70%. First Trust NASDAQ Global Auto ETF currently carries a Zacks ETF Rank #3 (Hold), with a High-risk outlook (read:  U.S. Inflation at a 30-Year High: 5 Sector ETFs to Win).

Earnings in Focus

Tesla TSLA is the market leader in battery-powered electric car sales in the United States, owning around 60% of the market share. In fact, the company’s flagship Model 3 accounts for about half of the U.S. EV market. On Jan 26, Tesla reported earnings per share of $2.54 for fourth-quarter 2021, beating the Zacks Consensus Estimate of $2.11.  The outperformance stemmed from higher-than-expected automotive gross profit, which came in at $4.88 billion, outpacing the consensus mark of $4.25 billion.  The earnings figure also compared favorably with the prior-year quarter’s 80 cents. Revenues rose to $17.72 billion, surpassing the consensus mark of $16.07 billion. The top line also witnessed year-over-year growth of 65%. During the fourth quarter, Tesla reported delivery and production of 308,650 and 305,840 vehicles, reflecting a year-over-year increase of 71% and 70%, respectively.

Tesla had cash and cash equivalents of $17.58 billion as of Dec 31, 2021, compared with $16.07 billion as of Sep 30, 2021.

Ford Motor Company F designs, manufactures, markets and services cars, trucks, sport utility vehicles, electrified vehicles, and Lincoln luxury vehicles. On Feb 3, Ford reported fourth-quarter 2021 adjusted earnings per share of 26 cents, lagging the Zacks Consensus Estimate of 43 cents. Lower-than-expected profits in North America and a pretax loss in Europe might have caused the underperformance. Notably, in the prior-year quarter, the company had reported earnings of 34 cents.

During the reported quarter, Ford reported automotive revenues of $35.30 billion, which outpaced the Zacks Consensus Estimate of $35.02 billion and were up 6% year over year. Ford had cash and cash equivalents of $20.54 billion as of Dec 31, 2021, compared with $25.24 billion on Dec 31, 2020.

One of the world’s largest automakers, General Motors GM, leads the U.S. market share with 17.1% of the industry’s total sales in 2020. On Feb 1, General Motors reported adjusted earnings of $1.35 per share for fourth-quarter 2021, beating the Zacks Consensus Estimate of $1.15 per share. Stronger-than-expected profits from its North America and Financial segments led the outperformance. The bottom line, however, compares unfavorably with year-ago quarter’s earnings of $1.93 per share. General Motors reported revenues worth $33.58 billion, down from the year-ago figure of $37.52 billion. However, the revenue figure surpassed the Zacks Consensus Estimate of $29.22 billion.

General Motors had cash and cash equivalents of $20.07 billion as of Dec 31, 2021, compared with $19.99 billion at the end of 2020.  The company recorded adjusted automotive free cash flow (FCF) of $6.40 billion for fourth-quarter 2021 comparing favorably with FCF of $3.43 billion in the prior-year period.

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Ford Motor Company (F): Free Stock Analysis Report
 
General Motors Company (GM): Free Stock Analysis Report
 
Tesla, Inc. (TSLA): Free Stock Analysis Report
 
First Trust SNetwork Future Vehicles & Technology ETF (CARZ): ETF Research Reports
 
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