Pep Boys - Manny, Moe & Jack (PBY) is set to report earnings before the stock market opens on Tuesday, June 9th (PBY earnings webcast). The Pep Boys - Manny, Moe & Jack, together with its subsidiaries, operates as an automotive service and retail chain in the United States and Puerto Rico. The company engages principally in automotive repair and maintenance; and sale of automotive tires, parts, and accessories.

PBY is expected to earn 7 cents for its 1st quarter. We expect the Auto Parts Store to announce earnings that will beat investors’ and analysts’ expectations. There have been some major upward revisions to PBY’s earnings expectations.

Four of the major auto parts stocks have already reported earnings: Genuine Parts Co. (GPC), O’Reilly Automotive Inc. (ORLY), AutoZone Inc. (AZO) and Advance Auto Parts Inc. (AAP). All 4 topped expectations by an average of 12.75%. The auto parts business has been a beneficiary of the economic downturn as car owners prefer to fix the cars they own versus a new purchase. We expect PBY to gain from this trend too.

This trend is not lost upon analysts, a few have lifted their estimates by more than 10 cents for PBY this quarter. The consensus earnings estimate started the quarter at -0.01 and now stands at 7 cents, as mentioned above. There is clearly a lot of anticipation in the hands of Manny, Moe and Jack. They better come through or Wall Street will treat them like Larry, Moe and Curly.

Pep Boys has seen its stock move aggressively following earnings. The last 6 quarterly checkups have seen the stock move between down 33% to up 25%. Since there is a lot of expectation built in, PBY could be a case of buy on the hype and sell on the news. The stock is up almost 30% since the middle of May. Due to Pep Boys post earnings volatility, we see it as an excellent option straddle candidate. A straddle is created when investors purchase an equal number of call options and put options. In this case, the June 7.50 call option and put option are the only choices that make sense.