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Aaron's (AAN): What's in the Cards this Earnings Season?

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Aaron's Inc. (AAN - Free Report) is slated to report fourth-quarter 2016 results on Feb 17. Last quarter, the company delivered a positive earnings surprise of 6.4%.

Further, the company has outperformed the Zacks Consensus Estimate by an average of 2.4% in the trailing four quarters. A look at the recent estimate revisions trend reveals that the Zacks Consensus Estimate for the fourth quarter has witnessed a downtrend in the last 30 days. Let’s see how things are shaping up for this announcement.

Aaron's, Inc. Price and EPS Surprise

 

Aaron's, Inc. Price and EPS Surprise | Aaron's, Inc. Quote

Factors Influencing This Quarter

Aaron’s remains focused on developing omnichannel network and enhancing eCommerce trends to boost revenues. Further, management remains impressed with consistent growth witnessed at its Progressive segment, which makes the company reasonably confident of the performance of this segment in the fourth quarter as well. This is evident from the company’s raised EBITDA guidance for the Progressive business for 2016.

While these factors bode well, the company’s Core business remains challenging. Evidently, the company anticipates soft comps at the Core segment in 2016. The company guided negative 5% to negative 3% comps for the remainder of 2016 compared with the previous guidance of negative 3% to flat comps. Further, it slashed its Core segment EBITDA forecast.

Consequently, the company trimmed its GAAP earnings forecast for 2016 to $1.79−$1.93 per share from $1.92−$2.12 expected previously. It expects adjusted earnings in the band of $2.16−$2.30 per share, compared with $2.13−$2.33 anticipated earlier.

Nonetheless, the company remains on track with cost-management and inventory control activities, along with undertaking efforts to right size store base. Management expects these activities to support the performance of core business and place it well for long-term profitability.

Shares of Aaron’s rose 20.9% in the past six months, outperforming the Zacks categorized Retail–Consumer Electronics industry that jumped 17.8% in the same time frame.



Backed by these iterations, we would prefer to wait and see what’s in store for Aaron’s in the quarter to be reported.

Earnings Whispers

Our proven model does not conclusively show that Aaron's 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: Aaron's currently has an Earnings ESP of -2.22%. This is because the Most Accurate estimate is pegged at 44 cents, below the Zacks Consensus Estimate of 45 cents. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Aaron's Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s ESP of -2.22% makes surprise prediction difficult.

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

Stocks that Warrant a Look

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:

Dean Foods Co. , scheduled to report earnings on Feb 16, currently has an Earnings ESP of +2.44% and a Zacks Rank #3.

Costco Wholesale Corp. (COST - Free Report) , slated to report earnings on Mar 2, currently has an Earnings ESP of +0.74% and a Zacks Rank #3.

Dollar Tree Inc. (DLTR - Free Report) , expected to release earnings on Mar 7, has an Earnings ESP of +0.75% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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