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Is a Beat in Store for O'Reilly (ORLY) This Earnings Season?

Zacks Equity Research

O'Reilly Automotive, Inc. ORLY is set to beat earnings estimates when it releases third-quarter 2019 results on Oct 23, before the opening bell. The current Zacks Consensus Estimate for the quarter to be reported is a profit of $4.78 a share on revenues of $2.64 billion.

This U.S.-based specialty retailer of automotive parts delivered weaker-than-expected results in the last reported quarter due to lower-than-anticipated comparable store sales growth. As far as earnings surprises are concerned, the company has a dismal record of missing estimates in three out of the trailing four quarters, the average being 0.02%. This is depicted in the graph below:

O'Reilly Automotive, Inc. Price and Consensus

O'Reilly Automotive, Inc. Price and Consensus

O'Reilly Automotive, Inc. price-consensus-chart | O'Reilly Automotive, Inc. Quote

Which Way are the Estimates Headed?

The Zacks Consensus Estimate for the third-quarter earnings per share (EPS) has been revised downward by a penny in the past 30 days to $4.78. However, the EPS reflects year-over-year increase of 6.2%. The Zacks Consensus Estimate for revenues is pegged at $2.64 billion, suggesting an uptick from the prior-year quarter’s $2.48 billion.

What the Zacks Model Says?

Our proven model predicts an earnings beat for O’Reilly this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: O’Reilly has an Earnings ESP of +0.23%.This is because the Most Accurate Estimate of $4.80 comes in two cents higher than the Zacks Consensus Estimate.

Zacks Rank: O’Reilly carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Setting the Tone

O'Reilly is anticipated to have gained from store openings, distribution centers in profitable regions during the third quarter. The company follows a dual-market strategy by serving Do-it-Yourself (DIY) and Do-it-for-Me (DIFM) customers. Notably, the Zacks Consensus Estimate for the number of stores at the end of the quarter stands at 5,390, marking an increase from the 5,190 recorded in the year-ago period. The company’s wide-ranging product portfolio catering to its DIY and DIFM customers will likely have driven comparable store sales growth sequentially.

Per O'Reilly, normal summer weather conditions in the quarter will likely have led to a solid start for the company, with an increased demand for core underlying hard parts. The company projects third-quarter comparable store sales at 3-5%. The Zacks Consensus estimate for comps growth for the to-be-reported quarter is pegged at 3.82%, higher than the prior quarter’s 3.40% but lower than the year-ago quarter’s 3.90%.

However, elevated selling, general and administrative (SG&A) costs and high capex might have dampened the company’s margins in the to-be-reported quarter.

The company is likely to have recorded higher SG&A costs associated with opening stores and distribution centres, and maintaining the existing ones, along with its efforts to offer superior customer services. O'Reilly’s high capital spending is likely to have weighed on its cash flows and the already-weak financials.

Other Stocks to Consider

O'Reilly is not the only firm looking up this earnings season. Here are some other companies, which according to our model also have the right combination of elements to post an earnings beat in the third quarter.

American Airlines Group Inc. AAL has an Earnings ESP of +1.64% and carries a Zacks Rank of 3. The company is slated to release third-quarter 2019 earnings on Oct 24.

Alliance Data Systems Corporation ADS is set to report quarterly figures on Oct 24. The company has an Earnings ESP of +1.34% and carries a Zacks Rank #3.

Allegiant Travel Company ALGT is scheduled to report third-quarter 2019 earnings on Oct 24. The stock has an Earnings ESP of +1.39% and holds a Zacks Rank #3.

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