The Zacks Analyst Blog Highlights: Whole Foods Market, Kraft, Tesla Motors, Meritor and BorgWarner

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Jul 31, 2014, 09:30 ET

CHICAGO, July 31, 2014 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Whole Foods Market (Nasdaq:WFM-Free Report), Kraft (Nasdaq:KRFT-Free Report), Tesla Motors, Inc. (Nasdaq:TSLA-Free Report), Meritor, Inc. (NYSE:MTOR-Free Report) and BorgWarner Inc. (NYSE:BWA-Free Report).

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

Here are highlights from Wednesday's Analyst Blog:

Whole Foods Earnings Mixed on Weak Comps, Kraft Misses

Whole Foods Market (Nasdaq:WFM-Free Report) reported fiscal Q3 earnings and sales after the closing bell on Wednesday, and the results again failed to thrill investors. Though earnings per share (EPS) reached 41 cents in the quarter -- beating the Zacks consensus estimate of 29 cents per share -- revenues came in a tad light of expectations at $3.38 billion.

Whole Foods shares are currently experiencing a sell-off of over 5% in the after-market, based on the news. This follows a hopeful regular-day trading increase of 3.8%. Year-to-date, Whole Foods stock is down 32%, making it the second-worst performer on the S&P 500 in 2014 thus far.

Comparable store sales disappointed investors, reporting an increase of 3.9%; analysts had been expecting 4.6% (and that was including the shift of the Easter holiday to Whole Foods' fiscal Q3, which was supposed to have provided a boost; it did, but only 60 basis points). Comp store sales through July (Q4) are up 1% so far. Whole Foods had earlier made mention of lowering prices to fight off a growing number of competitors, and gross margins are expecting to fall in line with historical norms in the mid-30% range.

None of this points toward explosive growth in the near future. Whole Foods produced $240 million in cash flow from operations in the quarter. Whether share buybacks or acquisitions -- or neither -- are in the cards for Whole Foods near term remains to be seen.

Another big name in Consumer Non-durables, Kraft (Nasdaq:KRFT-Free Report), also reported after the bell, and missed on both top and bottom lines: EPS of 80 cents per share missed the Zacks consensus of 83 cents, and quarterly sales of $4.7 billion missed our expectation of $4.85 billion. Like Whole Foods, top-line foods costs are weighing on profitability, though the company also cited strong free cash flow for the quarter.

Apparently, the processed food business is showing some of the same growth concerns as the organic foods market is. Perhaps it's time for two companies like Whole Foods and Kraft, with their decent sources of cash-flow, to consider helping each other out.

Is Tesla Likely to Disappoint on Q2 Earnings?

Tesla Motors, Inc. (Nasdaq:TSLA-Free Report) is set to report second-quarter 2014 results on Jul 31. Last quarter, this electric carmaker had posted a –60.00% surprise. Let us see how things are shaping up for this announcement.

Factors Affecting the Past Quarter

Tesla started deliveries of Model S in China in Apr 2014. The company also launched the right-hand version of Model S in Britain in Jun 2014. These moves should increase the company's demand.

However, Tesla is facing a shortage of lithium-ion battery cells, due to which it is unable to meet the rising demand for Model S. The company expects vehicle deliveries to increase to 7,500 in the second quarter of 2014 from 6,457 cars in the first quarter.

Meanwhile, production volume is expected to increase 13–19% from the first quarter of 2014 to 8,500–9,000 cars. However, deliveries are expected to be lower than production due to increase in the number of vehicles in transit to Europe and Asia. Further, operating expenses are expected to increase in the second quarter of 2014.

The company believes that research and development expenses will rise 30% while selling, general and administrative expenses will increase 15% during the quarter, both on a sequential basis. As a result, Tesla expects to record a marginal adjusted profit in the second quarter of 2014.

Earnings Whispers?

Our proven model does not conclusively show that Tesla is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank of #1, 2 or 3 for this to happen. That 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 24 cents per share.

Zacks Rank: Tesla currently has a Zacks Rank #3 (Hold). Though Zacks Rank #1, 2 or 3 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 momentum.

Other Stocks to Consider

Here are some companies in the automobile sector you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Meritor, Inc. (NYSE:MTOR-Free Report) has an earnings ESP of +26.67% and a Zacks Rank #2 (Buy). The company will report second-quarter earnings on Jul 31, 2014.

BorgWarner Inc. (NYSE:BWA-Free Report), with an earnings ESP of +1.15% and a Zacks Rank #2, will post second-quarter earnings on Jul 31, 2014.

Today, Zacks is promoting its ''Buy'' stock recommendations. Get #1Stock of the Day pick for free.

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