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Factors Likely to Decide Aaron's (AAN) Fate in Q3 Earnings

Zacks Equity Research

Aaron's, Inc. AAN is scheduled to report third-quarter 2017 results on Oct 27. The question lingering in investors’ mind is, whether this rent-to-own retailer will be able to maintain its positive earnings surprise streak in the to-be-reported quarter.

Notably, the company’s earnings have outpaced the Zacks Consensus Estimate for the last five quarters now, with a trailing four-quarter average of 14%.

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

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

The Zacks Consensus Estimate for the third quarter has moved down by a penny to 54 cents in the last seven days. However, the estimate reflects a year-over-year growth of about 8%. Further, analysts polled by Zacks expect revenues of $827.8 million, up 7.7% from the year-ago quarter.

Factors at Play

We note that declining comparable store sales (comps) at the company-operated stores remain concerns for quite some time. Evidently, comps dropped 8.1% and 9.3% in the second and first quarters of 2017, respectively. Also, 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 10.7% and 13.4% in the 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. Further, Aaron's bought considerably all the assets of its largest franchisee, SEI/Aaron's, which is anticipated to be accretive to earnings in 2017. Also, this deal is likely to widen Aaron's footprint in the markets with high growth opportunities, besides boosting its revenues and supply-chain synergies between the Aaron's Business and Progressive Leasing.

Also, management remains impressed with the continued strength at the Progressive business and is optimistic about its growth prospects in the near term.

So far this year, Aaron’s shares have rallied 31.6% compared with the industry’s growth of 28.7%.

What the Zacks Model Unveils?

Our proven model does not show that Aaron’s is likely to beat earnings 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Aaron’s has an Earnings ESP of -1.25%, which when combined with its Zacks Rank #4 (Sell) lowers the chances of an earnings beat.

As it is we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks With Favorable Combination

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:

Conn's, Inc. CONN has an Earnings ESP of +50.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Big Lots, Inc. BIG has an Earnings ESP of +15.39% and a Zacks Rank #2.

Lowe's Companies, Inc. LOW has an Earnings ESP of +1.23% and a Zacks Rank #3.

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