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What You Should Note Ahead of O'Reilly's (ORLY) Q4 Earnings

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O'Reilly Automotive, Inc. (ORLY) is slated to release fourth-quarter 2019 results on Feb 5, after the closing bell. The Zacks Consensus Estimate for the quarter to be reported is earnings of $4.27 per share on revenues of $2.5 billion.

This U.S.-based specialty retailer of automotive parts came up with weaker-than-expected results in the last reported quarter due to higher-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. This is depicted in the graph below:

O'Reilly Automotive, Inc. Price and EPS Surprise

 

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

O'Reilly Automotive, Inc. price-eps-surprise | O'Reilly Automotive, Inc. Quote

Trend in Estimate Revision

The Zacks Consensus Estimate for third-quarter earnings per share has been revised upward by a penny in the past 30 days to $4.27. The estimated figure indicates a year-over-year increase of 14.8%. The Zacks Consensus Estimate for revenues also suggests year-over-year uptick of 7%.

Factors Setting the Tone

O'Reilly is anticipated to have gained from store openings and distribution centers in profitable regions during the fourth 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 fourth quarter is pegged at 5,459, indicating an increase from 5,219 and 5,420 recorded in the year-ago period and the prior quarter, respectively. Its wide-ranging product portfolio catering to DIY and DIFM customers is likely to have driven comparable store sales growth.

It expects 3-5% rise in consolidated comparable store sales in the to-be-reported quarter. The Zacks Consensus Estimate for comps growth for fourth-quarter 2019 is pegged at 4.3%, suggesting an improvement from the prior-year quarter’s 3.3%.

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.

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

What the Zacks Model Says

Our proven model does not conclusively predict an earnings beat for O’Reilly this time around. 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. That is not the case here. 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 +2.23%.This is because the Most Accurate Estimate of $4.36 per share is pegged 9 cents higher than the Zacks Consensus Estimate.

Zacks Rank: O’Reilly carries a Zacks Rank of 4 (Sell), currently.

Stocks to Consider

Here are a few auto stocks worth considering, as these have the right combination of elements to come up with an earnings beat this time around:

BorgWarner Inc. BWA: The firm currently has an Earnings ESP of +1.11% and a Zacks Rank of 3. It is slated to release fourth-quarter 2019 results on Feb 13. You can see the complete list of today’s Zacks #1 Rank stocks here.

LKQ Corporation LKQ: LKQ Corp carries a Zacks Ran #3 and has an Earnings ESP of +1.49%. It is slated to release fourth-quarter 2019 results on Feb 20.

Visteon Corporation VC: Visteon carries a Zacks Ran #3 and has an Earnings ESP of +2.63%. It is slated to release fourth-quarter 2019 results on Feb 20.

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O'Reilly Automotive, Inc. (ORLY) : Free Stock Analysis Report
 
BorgWarner Inc. (BWA) : Free Stock Analysis Report
 
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