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Will O'Reilly (ORLY) Disappoint Estimates in Q1 Earnings?

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O'Reilly Automotive Inc. (ORLY - Free Report) is set to release its first-quarter 2017 earnings after the markets closes on Apr 26. The company posted positive earnings surprise in two of the four trailing quarters, with a positive average surprise of 1.14%.

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

Factors Influencing this Quarter

For first-quarter 2017, O’Reilly projects earnings per share in the range of $2.78–$2.88, compared to $2.59 recorded in first-quarter 2016. The company expects consolidated comparable store sales increase of 2–4%. For full-year 2017, the company expects earnings per share in the band of $12.05–$12.15. O’Reilly projects consolidated comparable store sales increase in the range of 3–5% during the year. The company anticipates revenues in the band of $9.1–$9.3 billion. For 2017, the gross margin guidance is pegged at 52.8–53.2% and operating margin is expected to be 20.1–20.5%.

However, O’Reilly’s stores are concentrated in certain locations in the U.S. Therefore, its business is exposed to the economic and weather conditions of these regions. The company’s strategy of lowering the time-to-market for its products to meet the demand in the professional installer market places it at a logistical disadvantage against competitors.

Additionally, much of O’Reilly’s cash is locked in inventories, which can affect its short-term liquidity in periods of low sales. Further, the company expects selling, general and administrative expenses to increase in 2017 compared to 2016, due to rising costs.

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 -0.69% because the Most Accurate estimate of $2.86 is pegged below the Zacks Consensus Estimate of $2.88. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

O'Reilly Automotive, Inc. Price and EPS Surprise


Zacks Rank: O’Reilly currently carries a Zacks Rank #4 (Sell) which when combined with a negative ESP lowers the predictive power of ESP. Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Price Performance

O’Reilly underperformed the Zacks categorized Automotive-Retail and Wholesale-Parts industry over the last six months. The company has posted a loss of 2.8% over this period, compared to the industry’s decline of 1.6%.

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:

Visteon Corporation (VC - Free Report) has an Earnings ESP of +5.8% and sports a Zacks Rank #1. The company is likely to report first-quarter 2017 results on Apr 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

CNH Industrial N.V. (CNHI - Free Report) has an earnings surprise of +33.33% and carries a Zacks Rank #2. The company’s first-quarter 2017 financial results are expected to release on Apr 27.

General Motors Company (GM - Free Report) has an earnings surprise of +3.5% and carries a Zacks Rank #3. The company’s first-quarter 2017 financial results are scheduled to release on Apr 28.

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