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O'Reilly (ORLY) to Post Q2 Earnings: What's in the Offing?

Zacks Equity Research

O’Reilly Automotive, Inc. ORLY is scheduled to release second-quarter 2019 financial results on Jul 24, before market open. In the last reported quarter, the specialty auto parts retailer delivered earnings miss of 0.25%. The company’s earnings surpassed estimates twice in the trailing four quarters, the average being 2.32%.

In the past three months, shares of O’Reilly Automotive have underperformed the industry it belongs to. The stock has inched up 0.3% compared with 4.3% increase of the industry.

Let’s discuss the factors that are likely to make an impact on the upcoming quarterly announcement.

Factors to Influence Q2

A solid start in the beginning of the year along with strong distribution network and dual market strategy are expected to drive O’Reilly Automotive’s upcoming quarterly results. In the soon-to-be-reported quarter, the company expects earnings in the range of $4.55-$4.65 per share. For 2019, the company reiterated total revenue projection in the range of $10-$10.3 billion and earnings per share in the band of $17.37-$17.47.  Apart from offering quality products, its industry-leading customer service will improve market share in 2019.

For the second quarter and 2019, the company expects to gain market share by executing their business model and providing the best customer service in their industry. As a result, the consolidated comparable store sales are expected to rise 3-5% in the quarter to be reported.

The company is poised to benefit from the opening and acquisition of new stores, which enables it to penetrate existing markets and expand in new, contiguous markets. For 2019, the company aims to open 200-210 stores compared with the actual count of 206 in 2018. In April, it purchased a location in the north of Mississippi for distribution center program. Addition of stores and distribution centers will enable O’Reilly to offer products to a large customer base.

However, increased complexity of auto parts has elevated prices across markets. The uptick in prices of parts compelled DIY consumers to change spending habits by neglecting basic maintenance and undertaking serious repairs. Decline in the sale of DIY auto parts is exerting pressure O’Reilly Automotive’s same-store revenue growth.

Further, expenses to open stores and sustain existing ones are increasing the company’s overall expenses. Apart from stores, the company’s focus on omnichannel goals will raise variable costs, thanks to the current inflationary environment and low unemployment rates.

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


What the Zacks Model Says

Our proven model does not conclusively show that the company is likely to beat earnings estimates in the quarter to be reported. 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 this to happen. This is not the case here as you will see below:

Earnings ESP: O’ Reilly has an Earnings ESP of -0.83%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at $4.64 and $4.67, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank #4 (Sell). A sell-rated rank with negative Earnings ESP makes surprise prediction difficult.

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.

Stocks to Consider

Here are some auto stocks worth considering, which have the right combination of elements to deliver an earnings beat this time around:

Dana Incorporated DAN has an Earnings ESP of +0.45% and carries a Zacks Rank #3. It is slated to release second-quarter 2019 results on Jul 31. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cummins Inc CMI has an Earnings ESP of +3.48% and currently carries a Zacks Rank of 3. It is slated to release second-quarter 2019 results on Jul 30.

Penske Automotive Group, Inc PAG has an Earnings ESP of +0.42% and currently carries a Zacks Rank of 3. The company is slated to release second-quarter 2019 results on Jul 30.

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