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Is O'Reilly (ORLY) Likely to Disappoint This Earnings Season?

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O'Reilly Automotive Inc. (ORLY - Free Report) is set to release its second-quarter 2016 results on Jul 27, after the market closes. Last quarter, the company posted a positive earnings surprise of 4.02%. It has delivered positive earnings surprises in all four trailing quarters, with an average beat of 5.75%.

Let’s see how things have shaped up for the forthcoming announcement.

Factors Influencing this Quarter

For second-quarter 2016, O’Reilly projects earnings per share in the range of $2.54–$2.64, higher than $2.29 recorded in the year-ago quarter. The company expects consolidated comparable store sales to increase 3%–5%. O’Reilly also pursues an aggressive share repurchase policy, which continues to boost earnings per share.

Further, the company undertakes the opening of new stores for greater penetration in existing markets and to expand into new, contiguous markets. A higher number of stores will help enhance the company’s second-quarter revenues.

However, O’Reilly’s stores are concentrated in a few locations in the U.S. Therefore, its business is exposed to the economic and weather conditions of these regions. In addition, much of O’Reilly’s cash is locked in inventories, which can affect its short-term liquidity in periods of low sales.

Earnings Whispers

Our proven model does not conclusively show that O’Reilly 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 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. O’Reilly’s Earnings ESP is -1.50% because the Most Accurate estimate stands at $2.63, while the Zacks Consensus Estimate is pegged at $2.67.

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

O REILLY AUTO Price and EPS Surprise

O REILLY AUTO Price and EPS Surprise | O REILLY AUTO Quote

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:

Westport Fuel Systems Inc. (WPRT - Free Report) has an Earnings ESP of +9.09% and a Zacks Rank #3. The company’s second-quarter 2016 financial results are expected to release on Aug 3.

Allison Transmission Holdings, Inc. (ALSN - Free Report) has an Earnings ESP of +6.35% and a Zacks Rank #3. The company’s second-quarter 2016 financial results are expected to release on Jul 27.

Visteon Corporation (VC - Free Report) has an Earnings ESP of +2.99% and a Zacks Rank #3. The company’s second-quarter fiscal 2016 results are expected to release on Jul 28.

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