Thoughts For June 28, 2012 1

O'Reilly Automotive (ORLY) has lowered their second-quarter comp guidance after the market close on Tuesday,  to 2.0% - 2.5% from 3.0% - 5.0% previously. The company now expects second-quarter earnings to be at the low end of the previously announced range of $1.13 - $1.17.  The lowered comp guidance reflects a slow start to April due to a pull forward in demand from the early Spring weather and below expectation comps in June following an improved sales pace in May. Competitor Autozone (AZO) presented at the Oppenheimer Consumer Conference in Boston that afternoon and said that they had seen some regional weaknesses in the first seven weeks of the quarter but otherwise refused to comment on their sales. Both stocks were hit on the ORLY guide down.


ORLY has now dropped through their 200-day moving average, while AZO has dropped to its 200-day. AAP, a third competitor has been well below its 200-day moving average since missing earnings back in May. Autozone's next earnings release isn't until September, thus their is more than enough time for the stock to join its competitors below the 200-day moving average. The stock has areas of support at $350, $340 and $330, implying downside of 2%, 5% and 8%, respectively. That would be drops of $5, $15 and $25 from the current quote. The stock last flirted with its 200-day back in August.

Thoughts for June 27, 2012 3

This one still looks like a pig to me. I got stopped out on it once when it popped back over the 200-day moving average. Sales had declined in the first quarter and I expect more of the same in the second. These guys also have exposure to Europe so the weakening euro will likely hurt them too. All said, I would not be surprised to see this stock drop to $18 and then eventually $15. Two points is 10% though with this stock trading at $20 so rallies can be painful!

Thought For June 27, 2012 Part 2

Danaher bouncing off its 200-day moving average here. The company will be reporting earnings on July 19th so there is time to trade a bounce here. DHR gets about 30% of its revenues out of Europe though, and the weak euro will likely have an impact on sales this quarter. EPS estimates haven't budged in the past sixty days really though so something to watch on the downside here.

All said, I look for weakening revenues out of Europe this quarter and maybe some cautious remarks on the conference call on the 19th. In the meantime, I wouldn't be surprised to see the stock drift about three points higher in the weeks leading up til then for about a 6% potential return.

Thoughts For June 27, 2012

Energy

The above chart shows oil inventories in the U.S. versus a 10-year average. With oil inventories high, it's likely the price of oil will continue to fall. This is a boon for transport stocks, which would benefit from the lower cost for fuel. Stocks that could benefit from this trend include: FDX, UPS, CSX, NSC, WERN and R among others.

Charts to keep on your radar: