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What's in the Cards for AutoZone (AZO) in Q1 Earnings?

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AutoZone, Inc. (AZO - Free Report) is slated to report first-quarter fiscal 2019 (ended Nov 17, 2018) results on Dec 4, before the market opens.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. In fact, it reported earnings beat in all the trailing four quarters. The average earnings surprise in the trailing four quarters was 6.6%. AutoZone has long-term growth rate of 12.2%.

In the past three months, AutoZone’s shares have outperformed the industry. The company’s shares have gained 9.5% compared with the industry’s increase of 4.2%.

AutoZone, Inc. Price and EPS Surprise

 

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

Factors to Consider

Over the past year, AutoZone has taken several initiatives to accelerate its commercial business, increase traffic in stores and deliver products to customers more frequently. The company is expanding its domestic supply chain network to improve the availability of local market inventory. Expanded coverage at the local level will enable it to fulfill customer demand more frequently.

Apart from improving its network presence, AutoZone is making system investments to create an omni-channel for customers and capture data to understand consumer buying patterns. Similar to fiscal 2018, these initiatives are expected to drive its earnings in first-quarter 2019 as well.

Apart from investments, a strong cash flow also aids the company to engage in share repurchase programs. In September, its board authorized to buy an additional $1.25 billion worth of common stock under its existing share repurchase program. Prior to this, the program was raised by $1 billion worth of common stock in March 2018. In fiscal 2018, AutoZone bought back 2.4 million shares for a record $1.59 billion.

However, investments for information technology developments, along with costs related to opening distribution centers and mega hub stores, are driving capital and operating expenses for the company. Further, increasing frequency of weekly deliveries to stores is increasing supply costs for the company. Although beneficial for the long term, expenses are likely to hurt margins over the next few years.

Earnings Whispers

Our proven model does not conclusively predict earnings beat for AutoZone 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.

Earnings ESP: AutoZone’s Earnings ESP is -1.29% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $12.06 and $12.21, respectively.

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

Zacks Rank: AutoZone currently carries a Zacks Rank of 2. This, when combined with negative Earnings ESP, makes prediction difficult.

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

Stocks to Consider

Here are a few stocks worth considering from the same space, with the right combination of elements:

BorgWarner Inc. (BWA - Free Report) has an Earnings ESP of +0.39% and a Zacks Rank #3. In third-quarter 2018, the company delivered adjusted earnings of $1 per share, beating the Zacks Consensus Estimate of 99 cents.

You can see the complete list of today’s Zacks #1 Rank stocks here.

CarGurus, Inc. (CARG - Free Report) has an Earnings ESP of +1.15% and a Zacks Rank #2. In third-quarter 2018, the company delivered earnings of 8 cents per share, beating the Zacks Consensus Estimate of 5 cents.

Tower International, Inc. (TOWR - Free Report) has an Earnings ESP of +0.84% and a Zacks Rank #2. In third-quarter 2018, the company delivered earnings of $1.08 per share, beating the Zacks Consensus Estimate of 97 cents.

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AutoZone, Inc. (AZO) - free report >>

BorgWarner Inc. (BWA) - free report >>

Tower International, Inc. (TOWR) - free report >>

CarGurus, Inc. (CARG) - free report >>

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