Earnings estimates have fallen sharply for Pep Boys (PBY) after the company reported disappointing second quarter results on September 8. It is a Zacks Rank #5 (Strong Sell) stock.
Although the stock has sold off heavily since the Q2 report, it still doesn’t look like a value at 23x forward earnings.
The Pep Boys – Manny, Moe & Jack is an automotive aftermarket chain with more than 800 locations in 35 states and Puerto Rico. The company offers tires, parts, automotive maintenance and repair, as well as commercial auto parts delivery and fleet maintenance and repair. It was founded in 1921.
Second Quarter Results
Pep Boys delivered disappointing second quarter results on September 8. Adjusted earnings per share came in at 6 cents, which was 10 cents below the Zacks Consensus Estimate. It was down from adjusted earnings per share of 17 cents in the same quarter last year.
Sales declined slightly year-over-year to $525.8 million, missing the consensus of $530.0 million. Same-store sales fell 1.8% as a 5.4% increase in same-store service revenue was more than offset by a 3.8% drop in same-store merchandise sales.
Through the first half of 2014, same-store sales were down 1.6%.
In addition, on September 26, the company announced that President & CEO Mike Odell resigned. Director John Sweetwood was named interim CEO, effective immediately. The board of directors intends to search for a permanent CEO.
Estimates Falling
Following weak second quarter results, analysts revised their estimates significantly lower for both 2014 and 2015, as you can see in the following chart:
This sent the stock to a Zacks Rank #5 (Strong Sell).
The current 2014 Zacks Consensus Estimate is now $0.17, down from $0.43 before the Q2 report. The 2015 consensus has fallen from $0.54 to $0.47 over the same period.
Valuation
While shares of Pep Boys have sold off heavily since the Q2 report, shares still at a hefty 23x 12-month forward earnings. That is a significant premium to the industry median of 16x.
The Bottom Line
With declining same-store sales, falling earnings estimates and premium valuation, investors should avoid Pep Boys for now.
Todd Bunton, CFA is a Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor and Surprise Trader services.
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