Is Tesla Headed Toward A Miss?

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Tesla Motors Inc TSLA is set to report fourth-quarter 2014 results on Feb 11. In the last quarter, this electric carmaker had posted a negative surprise of 93.3%. Let us see how things are shaping up for this announcement.

Factors Influencing this Quarter

The retooling of the Fremont plant in the third quarter of 2014 has increased Tesla's production capacity, which should help boost sales in the fourth quarter as the electric carmaker has more demand than production. The company also started selling the Model S in Australia during the fourth quarter. Further, Tesla expects to lease about 3,000–3,500 vehicles in North America in the quarter. These factors should have a positive effect on sales volume.

However, CEO Elon Musk recently revealed that Tesla's sales in China were below expectations in the fourth quarter of 2014 as people were worried about the charging method for electric cars. This will negatively affect the company's sales volume as Tesla expected China to account for 30–35% of its global sales growth in 2014.

Meanwhile, the company expects adjusted earnings per share to be about 30–35 cents in the fourth quarter. Both research and development expenses,and selling, general and administrative expenses are projected to rise approximately 10% in the quarter, which will weigh on the bottom line. Capital expenses are expected to be around $350 million.

Earnings Whispers

Our proven model does not conclusively show that Tesla is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Tesla has an Earnings ESP of 0.00%. That is because the Most Accurate estimate and the Zacks Consensus Estimate both currently stand at 13 cents.

Zacks Rank: Tesla currently has a Zacks Rank #2 (Buy). Though a Zacks Rank #2 increases the predictive power of ESP, the company's ESP of 0.00% makes surprise prediction difficult.

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

Stocks to Consider

Here are some 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:

Dana Holding Corporation DAN has an Earnings ESP of +4.26% and a Zacks Rank #3 (Hold). The company will report its fourth-quarter 2014 results on Feb 19.

American Axle & Manufacturing Holdings Inc. AXL has an Earnings ESP of +1.85% and a Zacks Rank #2. The company's fourth-quarter financial results are scheduled for release on Feb 23.

Magna International Inc. MGA has an Earnings ESP of +1.79% and a Zacks Rank #3. It will release its fourth-quarter earnings results on Feb 25.