Motorcar Parts of America
) recently delivered another impressive quarter as net sales jumped
29% and EPS more than doubled year-over-year. And once again,
analysts revised their estimates significantly higher after the
earnings report, sending the stock to a Zacks Rank #1 (Strong Buy).
Since the company's former subsidiary Fenco has been shuttered and
liquidated, the company has delivered 3 consecutive positive
earnings surprises, with an average beat of 43%. And since my
colleague Brian Bolan
first wrote about Motorcar Parts (MPAA) as the
'Bull of the Day' on November 22, 2013
, shares have jumped more than +50%.
Motorcar Parts of America remanufactures, manufactures and
distributes automotive aftermarket parts, including alternators,
starters and wheel hub assembly products. The company sells its
products automotive retailers like
). The market for aftermarket auto parts remains strong as the age
of vehicles in North America is approximately 10 years.
Fenco in the Rearview Mirror
Motorcar Parts of America recently owned a subsidiary called Fenco
that lost it a lot of money. Fenco sold undercar products like
steering components, pumps and gears, brake calipers and master
cylinders. MPAA acquired the company in May 2011 and tried to turn
it around, but it was unsuccessful. On June 10, 2013, Fenco filed
for Chapter 7 bankruptcy. It is now shuttered and has no recourse
back to MPAA. Fortunately, because of the riskiness of the original
acquisition, MPAA kept its debt isolated from the entire company.
This removed a dark cloud over shares of MPAA last year, and the
visibility of its strong core business has been improving. In fact,
in its first three earnings reports following the deconsolidation
of Fenco, MPAA has delivered three big positive earnings surprise,
with an average beat of 43%.
Its latest earnings beat was on February 10.
Third Quarter Results
On February 10, Motorcar Parts reported results for its fiscal 2014
third quarter. Adjusted earnings per share more than doubled
year-over-year to 39 cents, crushing the Zacks Consensus Estimate
of 26 cents.
Net sales jumped 29% to $65.6 million, well ahead of the consensus
of $63.0 million. CEO Selwyn Joffe cited
"strong industry dynamics"
and stated that he
"anticipate[s] this momentum will continue, supported by an
aging vehicle population and recent extreme weather conditions
throughout the nation."
Profit margins expanded too. Gross profit improved from 32.2% to
33.4% of sales, due to
"enhanced utilization of our facilities, due in part to higher
production and purchasing volume."
Following the excellent Q3 results, analysts revised their
estimates significantly higher for Motorcar Parts, for both 2014
and 2015. This sent the stock to a Zacks Rank #1 (Strong Buy).
The 2014 Zacks Consensus Estimate is now $1.39, up from $1.24 just
30 days ago. The 2015 consensus is currently $1.65, up from $1.50
over the same period.
You can see the sharp rise in consensus estimates (and the stock
price) over the last several months below:
Shares of Motorcar Parts have soared since last summer. But the
valuation picture still looks reasonable with shares trading at 16x
12-month forward earnings, below the industry median of 19x.
Its price to book ratio of 3.6 is also below its peer group at 4.5.
The Bottom Line
With reasonable valuation and surging earnings estimates amid
strong financial results, Motorcar Parts still offers investors
attractive upside potential.
Disclosure: The author owns shares of Motorcar Parts (MPAA).
Todd Bunton, CFA is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
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