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Aaron's (AAN) Q1 Earnings: Disappointment in the Cards?

Zacks Equity Research

Aaron's, Inc. AAN is scheduled to release first-quarter 2017 results on Apr 28. The big question facing investors is whether this rent-to-own retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

Aaron's posted a positive earnings surprise of 11.1% in the last reported quarter, which marked its third consecutive earnings beat. The Zacks Consensus Estimate for the first-quarter and 2017 has been stable over the last 30 days. However, the current Zacks Consensus Estimate of 66 cents per share for the first quarter reflects a year-over-year decline of 6.8%. Further, analysts polled by Zacks expect revenues of $834.1 million, down 2.4% from the year-ago quarter.

Aaron's, Inc. Price and EPS Surprise

Aaron's, Inc. Price and EPS Surprise | Aaron's, Inc. Quote

Factors Influencing this Quarter

While Aaron’s has a solid earnings history, the company has been lagging sales estimates for four straight quarters now, mainly owing to soft performance at its core – Aaron’s division. Incidentally, in the last reported quarter, top line declined year over year and missed our estimates, on account of a fall in Aaron’s Business revenues, lower franchised revenues and a drop in comparable store sales (comps). Further, management expects comps at Aaron’s Business segment to decline in the range of 8–12%, in 2017. All these factors raise concerns over Aaron’s performance, thus making us somewhat apprehensive about the company’s upcoming performance.

Nonetheless, management remains impressed with the performance of its Progressive division, which continues to have strong prospects. Though shares of the company rallied 17.2% in the last one year, it compares unfavorably with the Zacks categorized Retail – Consumer Electronics industry’s surge of 30.3%.

Earnings Whispers

Our proven model does not conclusively show that Aaron's is likely to beat estimates 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: Aaron's currently has an Earnings ESP of 0.00%. This is because both, the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 66 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Further, Aaron's currently carries a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

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:

McDonald's Corporation MCD, expected to report earnings on Apr 28, currently has an Earnings ESP of +3.03% and a Zacks Rank #3.

Sprouts Farmers Market, Inc. SFM, scheduled to release earnings on May 4, currently has an Earnings ESP of +3.45% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Red Robin Gourmet Burgers, Inc. RRGB, expected to release earnings on May 16, currently has an Earnings ESP of +17.24% and a Zacks Rank #3.

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