Pep Boys Second Quarter Earnings Preview

Pep Boys [[PBY]] is scheduled to report their second quarter 2009 results after the market closes on Tuesday, September 8th. Based on our analysis, we at are expecting PBY to report better than expected results that exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $502.5 million and EPS of $.15. This would represent only a marginal increase in revenues from last year’s $500.0 million in the same period. The current analyst consensus estimates calls for revenues of $502.5 million and EPS of $.14.


Pep Boys stock price has tripled since early March as investors have grown more confident about the prospects of economic recovery. Last quarter, the automotive service retailer managed to beat Wall Street’s earnings estimates after three consecutive disappointing quarters. While we expect that Pep Boys has benefitted from GM and Chrysler closing hundreds of dealerships across the country, their stock price appears to have risen too high too fast.


The company has aggressive growth plans to expand their current 600 locations to over 2,000 in the next 10 years. The competitive environment should be more favorable in the near term due to the large number of dealership closures that have occurred this year. However, while the stock is trading near its 52-week high, Wall Street is only expecting low single-digit growth both this year and next and doesn’t appear to justify the stock’s current valuation.


Stock Performance

Since the beginning of 2009, Pep Boy’s shares have gained a phenomenal 120% and have significantly outperformed the 8% gain in the Dow Jones industrial average. However last year, PBY’s stock fell 64% and underperformed even the 34% drop in the Dow Jones industrial average.



Shares are now trading at 21x consensus 2011 EPS estimates. This is a premium to the relative valuations of their peer group. While investors remain very optimistic about Pep Boys, it’s hard to justify paying such a high premium for limited near-term growth prospects


Recommendation: Sell with a $6 price target.


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