LKQ To Report Q4 Earnings: What's In Store For The Stock?

LKQ Corporation (NASDAQ:LKQ) is set to report fourth-quarter 2017 and full-year results before the opening bell on Feb 22.

Last quarter, the company delivered a positive surprise of 7.14%. Per its earnings record, the company missed estimates in only one of the trailing four quarters with an average beat of 0.8%.

In the last six months, shares of LKQ Corp have outperformed the industry it belongs to. The stock has rallied 22.6% compared with the industry’s 12.2% rise.

LKQ Corporation Price and EPS Surprise

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

Factors Influencing This Quarter

For 2017, LKQ Corp anticipates organic revenue growth of 4-4.5% for parts & services while the metric was 4.8% in the prior year. Also, the company projects adjusted earnings per share in the band of $1.86-$1.92 in comparison to $1.8 in 2016.

In December 2017, LKQ Corp announced its plan to acquire Stahlgruber GmbH for an enterprise value of approximately €1.5 billion from Stahlgruber Otto Gruber AG. The acquisition is likely to fortify its presence in the Pan-European aftermarket as a parts distributor and might also assist the company to expand worldwide. However, this move is anticipated to weigh on LKQ Corp’s already ailing gross margin figure.

The buyouts of Rhiag-Inter Auto Parts Italia S.p.A and Pittsburgh Glass Works enabled LKQ Corp to enhance its market potential as well as get cost synergy benefits. Later, the company completed the acquisition of Andrew Page business. These acquisitions lowered LKQ Corp’s gross margin to historical lows.

The company is also witnessing a continuous rise in Selling, General and Administrative expenses (SG&A), which includes fluctuating prices of fuel, scrap metal and other commodities. Further, for 2017, it expects capital expenditure within the $175-$200 million range.

Earnings Whispers

Our proven model does not conclusively show that LKQ Corp 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: LKQ Corp has an Earnings ESP of -1.85% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 41 cents and 42 cents, respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: LKQ Corp sports a Zacks Rank of 1, which increases the predictive power of ESP. However, a company needs a positive ESP to be confident about an earnings surprise. Hence, this combination leaves surprise prediction inconclusive.

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 stocks worth considering as per our model, these comprise the right combination of elements to come up with an earnings beat this time around:

Ferroglobe PLC (NASDAQ:GSM) has an Earnings ESP of +61.77% and a Zacks Rank #3. The company’s fourth-quarter 2017 financial results are expected to be released on Mar 15. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntsman Corporation (NYSE:HUN) has an Earnings ESP of +2.22% and the stock is a Zacks #1 Ranked player. The company will report fourth-quarter 2017 financial figures on Feb 23.

Orion Engineered Carbons S.A. (NYSE:OEC) has an Earnings ESP of +0.78% and a Zacks Rank of 3. The company’s fourth-quarter 2017 financial numbers are supposed to be announced on Feb 22.

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