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O'Reilly Automotive's (ORLY) Q2 Earnings: Is a Beat Likely?

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O'Reilly Automotive's (ORLY) Q2 Earnings: Is a Beat Likely?

O'Reilly (ORLY) is poised to benefit from store openings in existing markets as well as the new and contiguous ones.

O'Reilly Automotive Inc. ORLY is set to release second-quarter 2018 earnings on Jul 25, after the market closes. In the last reported quarter, the company delivered a positive surprise of 0.6%. It surpassed expectations in all the trailing four quarters, with an average beat of 3.5%.

In the past three months, shares of O'Reilly Automotive have outperformed the industry it belongs to. The stock has advanced 34.4% compared with the industry’s increase of 25% 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 Likely Positive Surprise?

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

Earnings ESP: Earnings ESP for O'Reilly Automotive is +1.27% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $4.09 and $4.04, 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, which increases the predictive power of ESP. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

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

What’s Driving Better-Than-Expected Earnings?

For second-quarter 2018, O’Reilly Automotive projects diluted earnings per share of $3.95-$4.05 compared with $3.10 recorded in the prior-year quarter. It expects consolidated comparable store sales to be 2-4%, rising from 1.7% in second-quarter 2017. The company’s dual-market strategy to sell products for both Do-it-Yourself (DIY) customers and Do-it-for-Me (DIFM) or professional installers and expansion in large markets as well as in scarcely populated areas gives it a competitive edge over other companies in the industry.

The company also follows an aggressive share-repurchase policy. In the last reported quarter, it repurchased 2.2 million shares for $549 million, reflecting an average price of $251.08 per share. Additionally, O’Reilly raised the share repurchase authorization amount by an additional $1 billion to $10.75 billion.

For the soon-to-be-released quarter, the Zacks Consensus Estimate for sales per weighted-average store stands at $470,000, up from the actual figure of $450,000 in first-quarter 2018.

However, O’Reilly Automotive’s strategy to lower time-to-market for its products to meet the demand in professional installer marketplaces has resulted in logistical disadvantage compared with its competitors. Also, the company is experiencing continuous rise in SG&A expenses, majorly due to new store openings and maintaining the old ones, which might hurt margins.

Other Stocks to Consider

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

LKQ Corporation LKQ has an Earnings ESP of +2.43% and a Zacks Rank #1. Its second-quarter 2018 results are expected to be released on Jul 26.

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

Visteon Corporation VC has an Earnings ESP of +2.86% and a Zacks Rank #2. The company’s second-quarter 2018 financial results are scheduled to be released on Jul 26.

Oshkosh Corporation OSK has an Earnings ESP of +2.85% and has a Zacks Rank of 2. The company is scheduled to report third-quarter fiscal 2018 results on Jul 31.

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