EC Revved Up Auto Sector Earnings Outlook

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We shared with you last week the unprecedented earnings boom enjoyed by the Construction sector. But the Construction sector is hardly alone in that respect, as you will see in the details of the Zacks Auto sector.

The Zacks Auto sector encompasses the original equipment manufacturers, both domestic and foreign, plus parts suppliers and tiremakers. Electric vehicle operators like Tesla (TSLA - Free Report) and its competitors are also housed here. The automobile dealerships like O’Reilly (ORLY - Free Report) and CarMax (KMX - Free Report) are not included here, but rather part of the Zacks Retail sector. Those automobile retailers have been raking it in lately as well.

Profitability of the Zacks Auto sector suffered last year as the pandemic had a debilitating effect on the group’s operations. But the group’s earnings were on a downtrend in the pre-pandemic period as well, as it was coming off four years of record earnings in the 2015 – 2018 period.

The chart below looks at the Zacks Auto sector’s aggregate earnings picture from 2003 through 2023.

As you can see, the Zacks Auto sector is currently expected to earn $21.1 billion in aggregate earnings this year, up +43.8% from the 2020 level and a new all-time record for the group. But this isn’t a one-off growth spurt, as the sector’s 2022 and 2023 earnings are expected to be new records in their own rights.

The Q1 earnings season has come to an end for the Zacks Auto sector. Total Q1 earnings for the sector were up +608.9% from the same period last year on +11% higher revenues, with 87.5% beating EPS estimates and the same proportion beating revenue estimates.

The outsized Q1 earnings growth is primarily a function of easy comparisons, as the final month of the year-earlier period was disrupted by the Covid lockdowns, which carried into 2020 Q2 when the sector as a whole lost money.

These stocks have pulled back significantly since February, but that came after a rip-roaring performance, with the sector as a whole still up almost twice as much as the S&P 500 index over the past year (+87.9% vs. +46%), as the chart below shows.

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