We expect O'Reilly Automotive Inc. (ORLY) to beat expectations when it reports fourth-quarter 2014 results on Feb 4. Let’s see how things are shaping up for this announcement.
Why a Likely Positive Surprise?
Our proven model shows that O’Reilly is likely to beat earnings this season because it has the right combination of the two key components.
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently pegged at +2.40%. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise.
Zacks Rank: O’Reilly currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Ranks #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
O’Reilly’s Zacks Rank #2 and positive ESP make us reasonably confident of a positive earnings beat.
What is Driving the Better-than-Expected Earnings?
O’Reilly pursues an aggressive share repurchase policy, which continues to boost earnings per share. Further, during the first nine months of 2014, O’Reilly opened 145 net new stores, which should help boost sales.The company expects consolidated comparable store sales (comps) to increase 5%–6% year over year for 2014. Thus, we can expect comps to increase in the fourth quarter as well.
O’Reilly has a positive trend of surpassing estimates. This is evident from the trailing four-quarter average surprise of +4.21%, greatly aided by the 5.64% surprise in the last-reported quarter, which was possible because O’Reilly did a good job of increasing its store count. Strong comps also helped drive the earnings beat in the third quarter.
Other 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 to post an earnings beat this quarter:
Dana Holding Corporation (DAN) has an Earnings ESP of +4.26% and a Zacks Rank #3 (Hold). The company will report its fourth-quarter 2014 results on Feb 19.
American Axle & Manufacturing Holdings Inc. (AXL) has an Earnings ESP of +1.85% and a Zacks Rank #2. The company’s fourth-quarter financial results are scheduled for release on Feb 6.
Magna International Inc. (MGA) has an Earnings ESP of +0.90% and a Zacks Rank #3. It will release its fourth-quarter earnings results on Feb 25.
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