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AutoZone (AZO) to Post Q2 Earnings: What's in the Cards?

Zacks Equity Research

AutoZone, Inc. AZO is slated to report second-quarter fiscal 2017 (ended Feb 11, 2017) results on Feb 28, before the opening bell. In the last quarter, the company’s earnings were in line with expectations. The company has posted a positive average earnings surprise of 0.76% over the trailing four quarters.

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

Factors Influencing This Quarter

AutoZone’s earnings per share have grown in double digits for 41 consecutive quarters. The company generates significant cash flows, which it utilizes to open new stores every year. The company has opened 16 stores in the U.S. and five stores in Mexico in first-quarter fiscal 2017 which should support revenues in the second quarter. The company aims to open 150 new domestic stores in fiscal 2017.

However, the company has been facing significant currency headwinds related to the Mexican peso and Brazilian real. Management expects this pressure to continue from the Mexican business.

Also, AutoZone expects its capital and operating expenses to rise over the next three years, backed by its plans to open two to three new distribution centers over this time frame. Further, the company is increasing the frequency of deliveries to its stores to three or five times a week from just once a week. This will lead to gross margin headwinds of around 15–20 basis points every quarter until the completion of the rollout.

Earnings Whispers

Our proven model does not conclusively show that AutoZone is likely to beat earnings 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: The Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. AutoZone’s Earnings ESP is -0.37%. This is because the Most Accurate estimate is pegged at $8.18 while the Zacks Consensus Estimate stands at $8.21. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AutoZone carries a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

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

Price Performance

In the last three months, share price of AutoZone decreased 8.9% while the Zacks categorized Automotive - Retail and Wholesale – Parts industry saw a 2.1% decline. Currency headwinds and pressure on the gross margin related to elevated supply chain costs weigh on the company’s performance.

Stocks to Consider

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 this quarter:

Spark Energy, Inc. SPKE has an Earnings ESP of +14.43% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extended Stay America, Inc. STAY has an Earnings ESP of +21.43% and carries a Zacks Rank #2.

Platform Specialty Products Corp. PAH has an Earnings ESP of +13.33% and a Zacks Rank #3.

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AutoZone, Inc. (AZO): Free Stock Analysis Report
Platform Specialty Products Corporation (PAH): Free Stock Analysis Report
Spark Energy, Inc. (SPKE): Free Stock Analysis Report
Extended Stay America, Inc. (STAY): Free Stock Analysis Report
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