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What's in the Offing for IAA (IAA) This Earnings Season?

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Insurance Auto Auctions aka IAA, Inc. (IAA - Free Report) is scheduled to release fourth-quarter 2020 results on Feb 16, before the market open. The Zacks Consensus Estimate for the quarter’s earnings per share and revenues is pinned at 43 cents and $364.46 million, respectively.

In the last reported quarter, this Illinois-based online vehicle auctioning company delivered better-than-expected earnings primarily on stellar top-line growth as well as cost reduction. Encouragingly, the bottom line also improved year over year.

IAA beat estimates in each of the trailing four quarters, the average surprise being 30.92%. This is depicted in the graph below:

IAA, Inc. Price and EPS Surprise

IAA, Inc. Price and EPS Surprise

IAA, Inc. price-eps-surprise | IAA, Inc. Quote

Trend in Estimate Revisions

The Zacks Consensus Estimate for IAA’s fourth-quarter earnings per share has remained unchanged over the past 90 days. However, this compares favorably with the year-ago quarter’s earnings of 37 cents per share, indicating 16.22% growth, year on year. The Zacks Consensus Estimate for quarterly revenues suggests a year-over-year rise of 2.41%.

What the Zacks Model Says

Our proven Zacks model does not conclusively predict an earnings beat for IAA this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, that is not the case here as elaborated below.

Earnings ESP: IAA has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate is at par with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: IAA currently carries a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let's delve deeper into the factors that are likely to have influenced IAA’s fourth-quarter performance.

Factors at Play

IAA’s successful roll-out of ‘Buyer Digital Transformation’ has transitioned the company to an online-only auction platform in the United States and Canada, which is likely to have boosted the firm’s revenues during the reported quarter. In December, the company announced the launch of SpinCar Feature Tour within its digital auction platform in Canada. This innovative feature enhances the Impact 360 View, enabling buyers to identify value-added features and options quickly on each listed vehicle, thus further expanding the company’s industry-leading merchandising platform in the Canadian market. This digital ramp-up is likely to have further buoyed the company’s revenues in the quarter to be reported.

Additionally, the positive impact of new products and tools, such as 360 View and Feature Tour, that IAA is offering buyers as well as the rise in used-car prices are likely to have driven top-line growth during the October-December period.  Also, the firm has identified opportunities in pricing via towing optimization and branch operational efficiencies, which is likely to have further boosted its margins during the period in discussion.

Encouragingly, during the reported quarter, the company increased the capacity of its IAA High Desert branch located in California and the overall Boston, in response to the strong demand and increasing inventory needs of customers. This enhanced capacity has strengthened IAA’s foothold on both the East and West Coast, which is likely to have bolstered the firm’s revenues in the to-be-reported quarter.

However, the company’s elevated capital expenditure and research and development costs on advanced technologies might have dented the margins to some extent during the fourth quarter.

Stocks to Consider

Here are a few stocks worth considering, as these have the right combination of elements to come up with an earnings beat this time around:

Allison Transmission Holdings (ALSN - Free Report) has an Earnings ESP of +7.44% and carries a Zacks Rank #3 at present. The company will announce fourth-quarter 2020 results on Feb 17.

LKQ Corporation (LKQ - Free Report) has an Earnings ESP of +5.48% and carries a Zacks Rank #3, currently. The company is scheduled to report quarterly numbers on Feb 18.

Magna International (MGA - Free Report) has an Earnings ESP of +5.42% and currently flaunts a Zacks Rank of 1. The company is slated to release earnings numbers on Feb 19.

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