On Sep 30, we maintained our Neutral recommendation on
Advance Auto Parts Inc.
) based on its continuous focus on enhancing the supply chain by
pursuing an aggressive store expansion strategy along with its
share repurchase policy, which is expected to boost earnings.
However, we are concerned about the uncertain economic
environment, volatile gasoline prices and pricing pressures.
Why the Reiteration?
On Aug 8, 2013, Advance Auto reported an 18.7% rise in earnings
to $1.59 per share in the second quarter of fiscal 2013 (ended
Jul 13, 2013) from $1.34 per share in the year-ago quarter. It
also beat the Zacks Consensus Estimate of $1.48. Earnings
benefited from higher gross margin and efficient cost control
Revenues went up 6.1% to $1.55 billion, missing the Zacks
Consensus Estimate of $1.59 billion. The increase was driven by
the acquisition of BWP Distributors and the net addition of 175
new stores in the last 12 months.
Following the release of the second quarter results, the Zacks
Consensus Estimate for 2013 went up 0.5% to $5.51 per share.
However, the Zacks Consensus Estimate for 2014 remained constant
at $6.08 per share. Currently, Advance Auto carries a Zacks Rank
Advance Auto will benefit from its focus on different operational
initiatives, which will improve sales and productivity within its
existing business. These initiatives include improvement of the
commercial business through better delivery speed and
reliability, increase of customer retention, improving in-store
execution by increasing labor productivity, and improving local
market availability through new store openings and by upgrading
the existing stores.
Advance Auto will be favorably impacted by the aggressive store
expansion strategy and share repurchase policy. During the second
quarter, the company opened 26 stores, including 5 Autopart
International stores, and closed 5 stores. In August, Advance
Auto celebrated the opening of its 4,000th store.
Share buyback helps in boosting earnings per share and increases
shareholders' confidence in the company. In the first half of
2013, the company repurchased about 1 million shares at an
aggregate cost of $74.5 million. As of Jul 13, 2013, the company
had roughly $418 million available on its $500 million share
repurchase program, authorized by its board of directors on May
However, uncertain economic environment with higher payroll
taxes, high unemployment and financial stress on the core
customers are some challenges faced by Advance Auto. In addition,
rising competition from national and regional automotive
) is a matter of concern for the company.
Other Stocks to Look For
O'Reilly Automotive Inc.
), both with a Zacks Rank #2 (Buy), are performing well in the
industry where Advance Auto operates.
ADVANCE AUTO PT (AAP): Free Stock Analysis
AUTOZONE INC (AZO): Free Stock Analysis
CARMAX GP (CC) (KMX): Free Stock Analysis
O REILLY AUTO (ORLY): Free Stock Analysis
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