O'Reilly Automotive Inc. (ORLY) is set to report its third-quarter 2014 results on Oct 22. In the last quarter, the company had posted an earnings surprise of +3.2%. Let us see how things are shaping up for this announcement.
Factors Affecting the Quarter
O’Reilly aggressively pursues the opening of new stores for greater penetration in existing markets and expansion into new, contiguous markets. During the first half of 2014, O’Reilly opened 91 net new stores in 28 states. The company plans to open a total of 200 stores in 2014. This helps in increasing the sales volume.
Further, O’Reilly pursues an aggressive share repurchase policy, which continues to boost earnings per share. In Aug 2014, the company approved a $500 million increase in its share repurchase program. The increase in share repurchase authorization reflects O’Reilly’s strong liquidity position. This is the second increase in share repurchase authorization this year.
However, much of O’Reilly’s cash is locked in inventories, which accounted for a significant 77.6% of current assets as of Jun 30, 2014.
For full-year 2014, the company raised the earnings per share guidance to $7.00–$7.10 from the previous estimate of $6.82–$6.92. O’Reilly expects consolidated comparable store sales to increase 3.5%–5.5%, up from the previous estimate of 3%–5%.
Earnings Whispers?
Our proven model does not conclusively show that O’Reilly is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Most Accurate estimate stands at $1.95 while the Zacks Consensus Estimate is $1.96. Hence, there is a difference of -0.51%.
Zacks Rank: O’Reilly’s Zacks Rank #2 (Buy) increases the predictive power of ESP. However, we need to have a positive ESP to be confident about an earnings surprise.
We caution against stocks with a Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some other companies you may want to consider as our model shows that these have the right combination of elements:
American Axle & Manufacturing Holdings Inc. (AXL) has an Earnings ESP of +4.6% and a Zacks Rank #3 (Hold). The company will report its third-quarter 2014 results on Oct 31.
Meritor, Inc. (MTOR) has an Earnings ESP of +37.5% and a Zacks Rank #3. It will release its third-quarter earnings results on Nov 12.
PACCAR Inc. (PCAR) has an Earnings ESP of +1.04% and a Zacks Rank #3. The company will post its third-quarter earnings results on Oct 28.
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