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Will Aaron's (AAN) Return to Earnings Beat Trend in Q4?

Zacks Equity Research

We expect Aaron's, Inc. AAN to beat expectations when it reports fourth-quarter 2017 results on Feb 15. The company posted negative earnings surprise of 20.4% in the last reported quarter.

However, the company delivered positive earnings surprises in the preceding three quarters. Consequently, it recorded an average trailing four-quarter beat of 7.3%. Let’s see how things are shaping up prior to this announcement.

Which Way are Estimates Treading?

The Zacks Consensus Estimate for the fourth quarter is pegged at 54 cents per share and has been stable in the last 30 days. The estimate reflects year-over-year growth of about 8%. Further, analysts polled by Zacks expect revenues of $874.3 million, up nearly 10% from the year-ago quarter.

Aaron's, Inc. Price, Consensus and EPS Surprise

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

Though Aaron’s shares have rallied 11.1% in the last three months, it has underperformed the industry’s growth of 18.8%.

Factors at Play

Though Aaron’s missed earnings in the last reported quarter, its top-line trend has been solid with positive surprise reported in the last three quarters. The company is gaining from the outstanding Progressive Leasing performance, along with improvement at Aaron's Business. Additionally, growth in lease margin both on a sequential and year-over-year basis continued in the last quarter, as progress on write-offs and robust sales growth trends contributed to the quarterly result.

However, it has been witnessing declining comparable store sales (comps) at the company-operated stores, which remains a key concern for quite some time. Evidently, comps dropped 5.6%, 8.1% and 9.3% in the third, second and first quarters of 2017, respectively. Further, the same declined 5.8%, 4.6%, 1.2% and 2.1%, respectively, in the fourth, third, second and first quarters of 2016. In 2017, comps at Aaron’s Business are expected to decline in the range of 7-9%.

Further, the company’s Aaron’s Business has been facing declining revenues for a while now. The Aaron’s Business’ revenues fell 4.9%, 10.7% and 13.4% in the third, second and first quarters of 2017, respectively.

Nevertheless, the company has been making investments in its Aaron's Business to enhance direct-to-consumer platform and overall growth. Additionally, it remains impressed with the continued strength at the Progressive business and is optimistic about growth prospects in the near term.

What the Zacks Model Unveils?

Our proven model shows that Aaron’s is likely to beat earnings estimates because it has the right combination of two key components. 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. The company has an Earnings ESP of +3.81%. This along with the company’s Zacks Rank #2 makes us reasonably confident of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Other Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Dillard’s Inc. DDS has an Earnings ESP of +4.25% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Macy’s Inc. M has an Earnings ESP of +0.92% and a Zacks Rank #2.

Lowe's Companies, Inc. LOW has an Earnings ESP of +3.25% and a Zacks Rank #2.

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