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What's in the Cards for AutoZone (AZO) in Q2 Earnings?

Zacks Equity Research

AutoZone, Inc. AZO is slated to report second-quarter fiscal 2019 (ended Feb 9, 2019) results on Feb 26, before the market opens.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. In fact, it recorded earnings beat in all of the trailing four quarters, the average earnings surprise being 8.8%. AutoZone has long-term growth rate of 12%.

In the past three months, AutoZone’s shares have outperformed the industry. The company’s shares gained 10.6% compared with the industry’s increase of 5.7%.

Let’s see how things are shaping up prior to this announcement.

AutoZone, Inc. Price and EPS Surprise


AutoZone, Inc. Price and EPS Surprise | AutoZone, Inc. Quote

Factors to Consider

Over the past year, AutoZone has taken several initiatives to accelerate the commercial business, increase traffic in stores and deliver products to customers more frequently. The company is expanding the domestic supply chain network to improve the availability of local market inventory. Expanded coverage at the local level will enable it to fulfill customer demand more frequently.

Apart from improving the network presence, AutoZone is making system investments to create an omni-channel for customers and capture data to understand consumer buying patterns. These initiatives are also expected to drive its earnings in second-quarter 2019.

However, investments for information technology developments, along with costs related to opening distribution centers and mega hub stores, are driving capital and operating expenses for the company. Further, the increasing frequency of weekly deliveries to stores is increasing supply costs. Although beneficial for the long term, these expenses are likely to hurt margins over the next few years.

Earnings Whispers

Our proven model does not conclusively predict earnings beat for AutoZone 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. This is not the case here as you will see below.

Earnings ESP: AutoZone’s Earnings ESP is -1.28% as the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $9.84 and $9.97, respectively.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: AutoZone currently carries a Zacks Rank of 3. This, when combined with negative Earnings ESP, makes prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few stocks worth considering, comprising the right combination of elements to deliver an earnings beat this time around:

Allison Transmission Holdings, Inc. ALSN has an Earnings ESP of +5.94% and it currently carries a Zacks Rank #3. Its fourth-quarter 2018 results are scheduled to release on Feb 26.

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

Westport Fuel Systems Inc. WPRT has an Earnings ESP of +50.00% and it currently carries a Zacks Rank #3.

Tahoe Resources Inc. TAHO has an Earnings ESP of +11.11% and it currently carries a Zacks Rank #3.

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AutoZone, Inc. (AZO) : Free Stock Analysis Report
Allison Transmission Holdings, Inc. (ALSN) : Free Stock Analysis Report
Westport Fuel Systems Inc. (WPRT) : Free Stock Analysis Report
Tahoe Resources, Inc. (TAHO) : Free Stock Analysis Report
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