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O'Reilly (ORLY) to Report Q4 Earnings: A Beat in the Cards?

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O'Reilly Automotive Inc. (ORLY - Free Report) is set to release fourth-quarter and fiscal 2017 earnings after the market closes on Feb 7. Last quarter, the company delivered a positive surprise of 2.2%. In the trailing four quarters, the company surpassed expectations thrice and missed once with an average beat of 0.34%.

Shares of O'Reilly Automotive have outperformed the industry it belongs to in the last three months. The stock has gained 21% compared with the industry’s 15.9% rally during the period.

Let’s see, how things are shaping up for this announcement.

O'Reilly Automotive, Inc. Price and EPS Surprise


Factors to Drive Better-Than-Expected Results

For fourth-quarter 2017, O’Reilly Automotive projects diluted earnings per share in the range of $2.65-$2.75. While for fiscal 2017, the company expects the metric in the band of $11.82-$11.92.

Further, for fiscal 2017, the company anticipates revenues of $8.9-$9 billion whereas the gross margin is estimated at 52.5-52.7% and the operating margin at 19-19.4%.

O’Reilly Automotive is poised to benefit from store openings in the existing markets as well as the new, contiguous ones. In the first nine months of fiscal 2017, O'Reilly Automotive unveiled 162 new stores across all its markets. Further, in 2018, it has plans to open up 200 more outlets.

The company also has a strong distribution network. O'Reilly Automotive’s dual-market stores are more dynamic and provide the company with a scope to operate in smaller markets and cater to a larger customer base.

However, high fixed costs, increasing wage rates and growing investments have induced an expenditure rise for the company. Also, a huge inventory is hampering the short-term liquidity of O'Reilly Automotive in periods of low sales.

For the soon-to-be-released quarter, the Zacks Consensus Estimate for sales per weighted-average store stands at $440,000, down from the third quarter’s actual figure of $470,000. Also, at the end of Dec 31, 2017, the Zacks Consensus Estimate for the total store count is 5,021 in comparison to 4,984, recorded on Sep 30, 2017.

Why a Likely Positive Surprise?

Our proven model shows that O'Reilly Automotive is likely to beat on earnings this quarter. That is because it has the right combination of the two key ingredients — a positive Earnings ESP and a solid Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

Zacks ESP: O'Reilly Automotive has an Earnings ESP of +0.50% as the Most Accurate estimate is pegged at $2.79, higher than the Zacks Consensus Estimate of $2.78. A positive ESP indicates a likely earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: O'Reilly Automotive sports a Zacks Rank #1 (Strong Buy), which increases the predictive power of ESP. Thus, this combination raises the chances of an earnings beat.

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

Other Stocks to Consider

Here are a few other stocks worth considering from the same space with the right combination of elements to exceed estimates this time around:

Allison Transmission Holdings, Inc. (ALSN - Free Report) has an Earnings ESP of +10.40% and a Zacks Rank of 3. The company is expected to report fourth-quarter 2017 results on Feb 14. You can see the complete list of today’s Zacks #1 Rank stocks here.

American Axle & Manufacturing Holdings, Inc. (AXL - Free Report) has an Earnings ESP of +2.81% and a Zacks Rank of 3. The company’s fourth-quarter 2017 results are expected to be released on Feb 16.

Tenneco Inc. (TEN - Free Report) has an Earnings ESP of +1.92% and the company is a Zacks #3 Ranked player. Its fourth-quarter 2017 results are slated to be announced on Feb 9.

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