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What's in Store for Advance Auto Parts (AAP) in Q3 Earnings?

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Advance Auto Parts Inc. (AAP - Free Report) is expected to report third-quarter fiscal 2017 results on Nov 14, before the market opens. Last quarter, the company reported a negative earnings surprise of 4.24%.

The company with an unimpressive earnings history has missed estimates in three of the trailing four quarters and surpassed on one occasion. The average negative surprise in the trailing 12 months came in at 9.11%.

Let’s see, how things shape up prior to the announcement.

Advance Auto Parts Inc Price and EPS Surprise



Factors to Consider

Advance Auto Parts witnessed total adjusted Selling, General and Administrative (SG&A) expenses of $797.6 million or 35.2% of sales in second-quarter fiscal 2017 in comparison to the prior-year quarter’s figure of $767.1 billion or 34% of sales. This rise in expenses is primarily due to higher investments in customer-focused strategies and costs pertaining to medical, insurance and support center expenses. Further, for 2017, the company projects capital expenditures of around $250 million.

Also, price competition among its national and regional peers and an improved quality of new vehicles leading to reduced need for maintenance and repair of parts are a few other concerns the company is facing.

However, its relentless focus on store expansions might drive the company’s profit as more number of stores ensures greater availability of parts to customers, thereby leading to higher sales volume. In fiscal 2017, the company plans to open 60-65 new stores.

The stock has seen the Zacks Consensus Estimate for quarterly earnings being revised 0.81% downward over the last seven days.

Earnings Whispers

Our proven model does not conclusively show that Advance Auto Parts is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But this is not the case here as you will see below:

Zacks ESP:  Advance Auto Parts has an Earnings ESP of -5.32%. This is because the Most Accurate estimate is pegged at $1.16 while the Zacks Consensus Estimate stands at $1.22.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Advance Auto Parts carries a Zacks Rank #3, which increases the predictive power of ESP. However, a stock also needs to have a positive ESP to be confident about an earnings surprise.

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

Price Performance

Last three months, shares of Advance Auto Parts have underperformed the industry it belongs to. The stock has declined 25.7% as aginst the industry’s 5.4% growth.


Stocks to Consider

Here are a few companies you may want to consider as per our model, these have the right combination of elements to deliver an earnings beat this quarter:

Meritor Inc. (MTOR - Free Report) sports a Zacks Rank #1 and has an Earnings ESP of +4.26%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westport Fuel Systems Inc. (WPRT - Free Report) carries a Zacks Rank #2 and has an Earnings ESP of +25.68%.

Navistar International Corporation (NAV - Free Report) flaunts a Zacks Rank of 1 and has an Earnings ESP of +24.09%.

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