Is A Beat Likely For Advance Auto Parts' (AAP) Q1 Earnings?

Advance Auto Parts, Inc. (NYSE:AAP) is set to report first-quarter 2018 results before the opening bell on May 22.

In the last reported quarter, the company delivered a positive surprise of 18.5%. Per the earnings record, the company beat estimates twice and missed twice in the trailing four quarters with an average beat of 2.2%.

In the last three months, shares of Advance Auto Parts have outperformed the industry it belongs to. The stock moved up 11.3% compared with the growth of 1.4% recorded by the industry during the period.

Advance Auto Parts, Inc. Price and EPS Surprise

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

Why a Likely Positive Surprise?

Our proven model shows that Advance Auto Parts is likely to beat on earnings this quarter. That is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing the odds of an earnings beat.

Earnings ESP: Advance Auto Parts has an Earnings ESP of +1.41% as the Most Accurate estimate is pegged at $2, higher than the Zacks Consensus Estimate of $1.98. A positive ESP indicates that an earnings surprise is likely. 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 3. This, when combined with a positive ESP, makes us reasonably confident of an earnings beat.

Conversely, we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

What’s Driving Better-Than-Expected Earnings?

The company’s business depends on the seasonality and weather conditions. Extremely hot or cold weather generally leads to increased sales as automotive parts stop working at accelerated rates. For first-quarter 2018, the company expects a rise in demand, driven by winter-related demand in key regions.

The company is focusing to expand its footprint by opening new stores, widening its online presence and by strategic acquisitions. Further, it aims to reduce inventory costs while improving the availability of products to meet customer needs. In fourth-quarter 2017, Advance Auto Parts announced a strategic partnership with Interstate Batteries, a leading provider of batteries for professional installers. Under the collaboration, the company’s stores and online website will offer the complete lineup of Interstate Batteries.

However, funding new stores, maintaining the old ones and investing to develop the supply chain might lead to increased capital expenditure for the company. For 2018, Advance Auto Parts anticipates capital expenditure to be $250 million compared with roughly $189 million in 2017.

Other Stocks to Consider

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

AutoZone, Inc. (NYSE:AZO) has an Earnings ESP of +0.42% and is a Zacks #3 Ranked player. The company’s third-quarter fiscal 2018 financial numbers are supposed to be announced on May 22. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Navistar International Corporation (NYSE:NAV) has an Earnings ESP of +21.89% and a Zacks Rank of 3. The company is expected to report second-quarter fiscal 2018 financial figures on Jun 6.

CarMax, Inc. (NYSE:KMX) has an Earnings ESP of +3.38% and a Zacks Rank of 3. The company’s first-quarter 2018 financial results are expected to be released on Jun 20.

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