Is Fastenal (FAST) Set To Beat Earnings Estimates In Q1?

We expect Fastenal Company (NASDAQ:FAST) to beat expectations when it reports first-quarter 2017 results before the opening bell on Apr 12. Last quarter, the company reported a positive earnings surprise of 5.26%. However, it failed to surpass the expectations in two of the last four quarters, with the average being negative 0.80%. Let’s see how things are shaping up prior to this announcement.

Why a Likely Positive Surprise?

Our proven model shows that Fastenal is likely to beat earnings because it has the right combination of two key components.

Zacks ESP: Fastenal has an Earnings ESP of +2.17%. That is because the Most Accurate estimate is 47 cents while the Zacks Consensus Estimate is pegged lower at 46 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Fastenal currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings estimates. Conversely, stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement.

The combination of Fastenal’s Zacks Rank #2 and +2.17% ESP makes us reasonably confident of a positive earnings beat.

What is Driving the Better-Than-Expected Earnings?

Fastenal is a wholesale distributor to industrial and construction customers. It serves the manufacturing and non-residential construction markets. Industrial and manufacturing activity are the major drivers of the business and Fastenal business looks to benefit if the new presidential administration successfully lowers the corporate tax rate and speed up domestic infrastructure spending.

During the fourth-quarter 2016 earnings call, management had already indicated that the company is in “a stable margin environment” as it believes that recent improvements in margins on non-fasteners, a higher mix of sales of exclusive brands and better purchasing can continue to offset the ongoing mix headwinds. Additionally, recent increases in steel and other commodity prices also add to the positives.

However, Fastenal’s top line was soft since 2015 and continued to experience a slowdown throughout 2016, including a contraction of 2.4% in the fourth quarter. Again, lack of inflation, unfavorable product mix (less fasteners which generate higher margins), strong emphasis on growing average store sales, pricing and competitive pressure are hurting gross margins. Though gross margin improved 50 basis points (bps) sequentially in the fourth quarter, it was still down 10 bps year over year. Overall, 2016 gross margin dropped 80 basis points from the 2015 level.

If we take a closer look at the company’s sales trend, Fastenal’s net sales for February increased 1.1% and that for January 9% year over year. The daily sales growth rate was 6.1% in February, higher than the 3.8% increase in Jan 2017. Although daily sales remained stagnant for the most part, it did show pulse in recent times.

For the first quarter, the Zacks Consensus Estimate for earnings stands at 46 cents, reflecting a 4.6% year-over-year increase. Meanwhile, the estimate for revenues is pegged at $1.03 billion, implying 4.7% growth.

Fastenal Company Price and EPS Surprise

Fastenal Company Price and EPS Surprise | Fastenal Company Quote

Stocks to Consider

Here are some companies in the Retail-Wholesale sector, that, according to our model, have the right combination of elements to post an earnings beat this quarter:

Group 1 Automotive, Inc. (NYSE:GPI) has an Earnings ESP of +1.75% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is expected to release quarterly results on Apr 26.

J.C. Penney Company, Inc. Holding Company (NYSE:JCP) has an Earnings ESP of +70% and a Zacks Rank #3. The company is expected to release quarterly results on May 12.

Tractor Supply Company (NASDAQ:TSCO) has an Earnings ESP of +1.89% and a Zacks Rank #3. The company is slated to release quarterly results on Apr 26.

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