Motorcar Parts Of America
) car sales have been solid this year, and many expect them to keep
rolling along. One supplier to the big car companies is MPAA and as
a Zacks Rank #1 (Strong Buy) it is the Bull of the Day.
As Car Sales Pick Up, So Does MPAA
For the past several months, US auto sales have shown consistent
growth. The sequential growth has small, but the year over year
growth was impressive. There was a big drop off in September as new
models hit the showroom floors, but as we rolled into the November
1 sales numbers, the growth returned.
This page from the
Wall Street Journal
breaks down auto sales in a fairly high level of detail. Its
interesting stuff no doubt, but the overwhelming idea that you
should get from scanning that page is that people are buying new
Motorcar Parts of America makes and distributes aftermarket
automobile parts. They focus on brakes, wheels, alternators,
starters, and wheel hub assembly products for import and domestic
cars, light trucks, heavy duty, agricultural, and industrial
applications. Motorcar Parts of America was founded in 1968 and is
headquartered in Torrance, California.
Beat and Re-Fi?
You probably have heard of beats and raises, but how about beat and
refinances? Well that just happened for MPAA, as they recently beat
estimates and refinance a $95M term loan which should dramatically
reduce interest expense charges. The decrease in that line item in
the income statement should send more cash flowing through to net
income, and thus higher earnings.
The company reported earnings of $0.36 on November 12, and that was
$0.09 ahead of the Zacks Consensus Estimate for a 33% positive
earnings surprise. It was on this report that the company announced
the re-fi and investors sent the stock soaring 31.8% in the session
following the release.
At least one analyst noted that the re-fi would end up increasing
earnings estimates by $0.15-$0.20. When The consensus was looking
for $1.00 this year and $1.31 next year, a $0.15 bump for each year
can end of driving the stock higher for some time to come.
MPAA Sees Estimates Moving Higher
As noted above, the trend for earnings estimates for MPAA is one
that makes aggressive growth investors salivate. Estimates stood at
$0.58 for 2013 back in May of this year, but then jumped to $1.00
in June following an earnings beat previous to the one that
contained the re-fi. The Zacks Consensus Estimate drifted higher to
$1.11 by October and is now at $1.22.
The Zacks Consensus Estimate for 2014 is also seeing big, positive
moves. Analysts had their number awfully low back in May, with the
consensus at $0.59 which suggested a mere penny of year over year
earnings growth. They have since stepped on the gas with the Zacks
Consensus Estimate jumping to $1.13 in June and $1.31 in September.
The current Zacks Consensus Estimate for 2014 is $1.46. The implied
earnings growth rate is nearly 20%.
MPAA has a very solid valuation picture. The forward PE of 14.4x is
still well below the 18x industry average. the price to book
multiple of 2.5x is just below the 2.9x industry average and the
price to sales multiple is in line with the average. As I look to
the margin analysis, I see that MPAA has a 9.4% net margin (which
is likely to increase given the re-fi) compared to a 4.4% industry
average. This means that at some point, the leverage they have will
make the company attractive to other bigger competitors in the
The price and consensus chart is a great tool developed by Zacks.
It shows how the stock has acted as the Zacks Consensus Estimate
moves over time. The red line in the chart below show the struggle
the company had during 2012. More recently, we see the stock
starting to pick up as 2014 estimates are released. Stocks tend to
follow earnings estimates, and the clear trend here is for higher
estimates and that should lead to a higher stock price down the
I am long MPAA in my trading account.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor
in charge of the
Run Investor service
, a Buy and Hold service where he recommends the stocks in the
Brian is also the editor of
Breakout Growth Trader
a trading service that focuses on small cap stocks and also carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
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MOTORCAR PARTS (MPAA): Free Stock Analysis
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