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Can Fastenal Company (FAST) Beat Earnings Estimates in Q3?

Zacks Equity Research
Updated

We expect Fastenal Company FAST to beat expectations when it reports third-quarter fiscal 2017 results on Oct 11, before the opening bell.

Last quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 4%. Moreover, Fastenal surpassed expectations in two of the last four quarters, the average being 1.8%.

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 ingredients.

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is pegged at +0.60%. A positive 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.

Fastenal Company Price and EPS Surprise

 

Fastenal Company Price and EPS Surprise | Fastenal Company Quote

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

The combination of Fastenal’s Zacks Rank #3 and +0.60% ESP makes us reasonably confident about an earnings beat in the to-be-reported quarter.

What is Driving the Better-than-Expected Earnings?

Increased installation of industrial vending machines is expected to boost sales and profits in the to-be-reported quarter as it is one of the primary growth drivers for Fastenal. Moreover, a continual increase in the number of on-site locations is likely to expand Fastenal’s market share and contribute to the quarterly numbers.

We are also encouraged by Fastenal’s acquisition of certain assets of industrial and fastener supply distributor — Manufacturer's Supply Company (Mansco) — in March 2017. This ensures Fastenal’s presence in markets where it has not meaningfully contributed in the past. Mansco contributed 3.6% to fastener daily sales growth of 7.9% in the last reported quarter and is expected to contribute in the to-be-reported quarter as well.

However, we are apprehensive about Fastenal’s changes in product and customer mix that have been hurting the gross margin for quite some time now. Also, sales in the quarter could be adversely affected owing to the impact of Hurricane Harvey and Irma.

For the quarter, the Zacks Consensus Estimate for earnings stands at 50 cents, reflecting a 13.4% year-over-year increase. Meanwhile, the estimate for revenues is pegged at $1.13 billion, implying 11.1% growth.

Other 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:

McDonald's Corporation MCD has an Earnings ESP of +1.29% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company is slated to release quarterly results on Oct 24.

Domino's Pizza Inc DPZ has an Earnings ESP of +2.12% and a Zacks Rank #2. The company is scheduled to release quarterly results on Oct 12.

Bravo Brio Restaurant Group, Inc. BBRG has an Earnings ESP of +6.25% and a Zacks Rank #3. The company is expected to release quarterly results on Nov 1.

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Fastenal Company (FAST) : Free Stock Analysis Report
 
Domino's Pizza Inc (DPZ) : Free Stock Analysis Report
 
McDonald's Corporation (MCD) : Free Stock Analysis Report
 
Bravo Brio Restaurant Group, Inc. (BBRG) : Free Stock Analysis Report
 
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Zacks Investment Research