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Is a Beat Likely for O'Reilly Automotive (ORLY) Q4 Earnings?

Zacks Equity Research

O'Reilly Automotive Inc. ORLY is set to release fourth-quarter and 2018 earnings on Feb 6. In the last reported quarter, this specialty auto parts retailer delivered a positive surprise of 4.6%. It surpassed estimates in all of the trailing four quarters, the average beat being 3.9%.

In the past three months, shares of O'Reilly Automotive have outperformed the industry it belongs to. The stock has advanced 6% compared with 0.8% increase recorded by the industry during the period.

Let’s see, how things are shaping up for this announcement.

O'Reilly Automotive, Inc. Price and EPS Surprise

 

O'Reilly Automotive, Inc. Price and EPS Surprise | O'Reilly Automotive, Inc. Quote

Why a Positive Surprise is Likely

Our proven model shows that O’Reilly Automotive is likely to beat earnings estimates this quarter. This is because a stock needs to have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for increasing the odds of an earnings beat.

Earnings ESP: O’Reilly Automotive has an Earnings ESP of +2.01% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $3.83 and $3.75, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: O’Reilly Automotive currently carries a Zacks Rank #3.

Note that 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?

O’Reilly Automotive is poised to gain from growing presence through store openings and expansion of distribution networks in profitable regions. Apart from improving presence in matured regions in the United States, the company is adding stores in less-populated areas, which presents it opportunities to increase its market across the country.

For 2018, the company had a target to open 200 stores across 33 different states. During the first nine months, ending on Sep 30, 2018, the company opened 171 stores. For fourth-quarter 2018, the Zacks Consensus Estimate for O’Reilly Automotive’s store openings is pegged at 26. This leads to store count of 5,190.

Further, the company is making investments to strengthen the distribution network that will support continued store growth and provide it with a competitive edge over the peers. In the third quarter, O’Reilly Automotive announced the acquisition of properties in Twinsburg, OH, and Lebanon, TN, which will add two more distribution centers for the company.

On the backdrop of strong market presence and stable economy, the company expects earnings of $3.6-$3.7 per share in fourth-quarter 2018, whereas comparable store sales are expected to be 2-4%.

However, tariff-related raw material costs are expected to hurt O’Reilly Automotive’s profit margins in fourth-quarter 2018. Further, wage pressure, freight costs and fuel expenses are other headwinds for this specialty auto parts retailer.

Other Stocks to Consider

Here are a few other stocks from the same space, with the right combination of elements to outpace earnings estimates this time around:

General Motors Company GM has an Earnings ESP of +11.39% and it currently carries a Zacks Rank #2. Its fourth-quarter 2018 results are scheduled to release on Feb 6.

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

Wabco Holdings Inc. WBC has an Earnings ESP of +2.81% and is a #3 Ranked player. Its fourth-quarter 2018 results are slated to release on Feb 15.

Peer Release

PACCAR Inc. PCAR has an Earnings ESP of +1.48% and a Zacks Rank of 3. In fourth-quarter 2018, the company’s consolidated net sales and revenues were $5.93 billion while earnings were $1.65 per share.

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