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AutoZone (AZO) to Report Q3 Earnings: Is a Beat in Store?

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AutoZone, Inc. (AZO - Free Report) is slated to report third-quarter fiscal 2018 (ended May 5, 2018) results on May 22, before the market opens.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. In three out of the trailing four quarters, the company reported an earnings beat while announcing an earnings miss in the remaining quarter. The average earnings surprise in the trailing four quarters was 3.8%. AutoZone has long-term growth rate of 13.7%.

In the last three months, AutoZone’s shares have underperformed the industry. The company’s shares have lost 9.5% compared with the industry’s increase of 1.4%.

Let’s see how things are shaping up prior to this announcement.

AutoZone, Inc. Price and EPS Surprise

AutoZone, Inc. Price and EPS Surprise | AutoZone, Inc. Quote

Is Positive Surprise Likely?

According to our quantitative model, chances of AutoZone beating the Zacks Consensus Estimate in the fiscal third quarter are high. This is because, it has the right combination of the two key ingredients, a positive Earnings ESP and a Zacks Rank #3 (Hold) or better, which is required to increase the odds of an earnings beat.

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

Zacks ESP: Earnings ESP for AutoZone is +0.42%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $13.04 and $12.99, respectively.

Zacks Rank: AutoZone carries a Zacks Rank #3. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

What’s Driving Better-Than-Expected Earnings?

AutoZone utilizes cash flow to open new stores every year and repurchase shares. During second-quarter fiscal 2018, AutoZone opened 35 new stores and closed one in the United States. The company also opened three new stores in Mexico and two in Brazil. As of Feb 10, the company had 5,514 stores across 50 states in the United States, the District of Columbia and Puerto Rico; 532 in Mexico; 26 Interamerican Motor Corp. branches and 16 in Brazil. As of that date, the total store count was 6,088. It seemed that this trend continued in third-quarter fiscal 2018. This is likely to have some positive impacts on results.

The company has ample liquidity to repurchase shares without compromising financial strength as well as credit ratings. In the second quarter of fiscal 2018, AutoZone repurchased 227,000 shares for $174.9 million, reflecting an average price of $769 per share. At the end of the fiscal second quarter, the company had shares worth $296 million, remaining for repurchase. The company is constantly focusing on enhancing shareholder returns while simultaneously maintaining adequate liquidity for its business strategies.

Stocks to Consider

Here are a few stocks worth considering. As per our model, these comprise the right combination of elements to come up with an earnings beat this time around:

Advance Auto Parts, Inc. (AAP - Free Report) has an Earnings ESP of +1.41% and a Zacks Rank #3. The company’s first-quarter 2018 financial results are expected to be released on May 22. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

CarMax, Inc. (KMX - Free Report) has an Earnings ESP of +3.38% and a Zacks Rank #3. The company’s first-quarter fiscal 2019 results are expected to be released on Jun 20.

Navistar International Corporation (NAV - Free Report) has an Earnings ESP of +21.89% and a Zacks Rank #3. The company’s second-quarter fiscal 2018 financial results are expected to be released on Jun 6.

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