Advance Auto Parts (AAP) Q4 Earnings: What's In The Cards?

Advance Auto Parts, Inc. (NYSE:AAP) is set to report fourth-quarter and fiscal 2017 results before the opening bell on Feb 21.

Last quarter, the company delivered a positive surprise of 19.2%. Per its earnings record, it beat estimates in only one of the four trailing quarters with an average miss of 4.5%.

In the last three months, shares of Advance Auto Parts have outperformed the industry it belongs to. The stock gained 20.2%, compared with the industry’s 8.9% rally during the period.

Advance Auto Parts Inc Price and EPS Surprise

Let’s see, how things have shaped up for the upcoming announcement.

Factors Influencing This Quarter

Advance Auto Parts has been witnessing a continuous rise in Selling, General and Administrative (SG&A) expenses, primarily driven by higher investment toward customer-focused strategies and expenses related to store consolidation and support center restructuring. In third-quarter 2017, the company’s adjusted SG&A expenses were $775.5 million or 35.5% of sales, in comparison with $770.6 million or 34.3% in the year-ago period. Also, huge pricing competition with its peers, which include both national and regional automotive retailers, is a concern for Advance Auto Parts.

However, the company’s constant effort to keep on expanding its stores has been majorly driving its profits. In fiscal 2017, the company aims to open 75 to 85 new stores, while it opened 78 stores in 2016.

For the long term, the company is working toward improvising its comparable store sales and margins. The former figure is anticipated to range between remaining stable and growing 2% year over year in 2017.

Earnings Whispers

Our proven model does not conclusively show that Advance Auto Parts is likely to beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a favorable Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. But that is not the case here as you will see below.

Zacks ESP: Advance Auto Parts has an Earnings ESP of -2.63% because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 63 cents and 65 cents, respectively. You can uncover the best stocks to buy or sell, before they’re reported, with our Earnings ESP Filter.

Zacks Rank: Advance Auto Parts carries a Zacks Rank of 2, which increases the predictive power of ESP. However, its combination with a negative Earnings ESP makes surprise prediction inconclusive. Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few auto stocks worth considering from the same space, comprising the right combination of elements to come up with earnings beat this time around:

Magna International, Inc. (NYSE:MGA) has an Earnings ESP of +1.27% and a Zacks Rank #3. The company’s fourth-quarter 2017 financial results are expected to be released on Feb 22. You can see the complete list of today’s Zacks #1 Rank stocks here.

LKQ Corporation (NASDAQ:LKQ) has an Earnings ESP of +0.92% and a Zacks Rank of 2. The company will report fourth-quarter 2017 financial figures on Feb 22.

Spartan Motors, Inc. (NASDAQ:SPAR) has an Earnings ESP of +3.85% and is a Zacks #3 Ranked player. The company’s fourth-quarter 2017 financial numbers are supposed to be announced on Mar 1.

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