On Jun 19, we downgraded
Genuine Parts Company
) to Neutral from Outperform based on first quarter performance
where earnings remained flat year on year and revenues missed our
estimates. However, we still believe that the company will
benefit from the various initiatives undertaken to boost
performance, such as product line expansion, penetration into new
markets and acquisitions.
Why the Downgrade?
On Apr 19, Genuine Parts posted earnings per share of 93 cents
for the first quarter of 2013, which were flat compared with the
year-ago level. Earnings also missed the Zacks Consensus Estimate
by 6 cents per share.
Quarterly sales grew marginally by 0.6% to $3.2 billion, missing
the Zacks Consensus Estimate of $3.3 billion. The marginal rise
was mainly attributable to poor sales in the company's
Industrial, Electrical, and Office Products segments, which were
offset by improvement in the Automotive segment.
Following the release of the first quarter results, the Zacks
Consensus Estimate for 2013 decreased 0.7% to $4.51 per share.
The Zacks Consensus Estimate for 2014 dropped 0.6% to $4.90 per
share. Currently, Genuine Parts retains a Zacks Rank #3 (Hold).
Genuine Parts will benefit from various initiatives undertaken by
it for boosting performance. The company has focused on product
line expansion, penetration into new markets and cost-saving
activities. In addition, the company will benefit from diverse
product portfolio and rising demand in Automotive Parts segment.
The acquisition of Quaker City Motor Parts will help Genuine
Parts to improve in future. The company expects that the
acquisition will deliver a fabulous opportunity in the
mid-Atlantic region with 270 NAPA parts stores.
However, Genuine Parts faced a challenging situation due to the
slow start in 2013. In addition, margins are under pressure as
Genuine Parts has been unable to implement meaningful price hikes
in its automotive business owing to pressure from retailers.
Margin expansions in Industrial Parts and Electrical/Electronic
Material segments are also limited as it sells lower-margin
Other Stocks to Consider
Some other stocks that are performing well in the industry where
Genuine Parts operates include
Standard Motor Product Inc.
Motorcar Parts of America Inc.
). Standard Motor is a Zacks Rank #1 (Strong Buy) stock, while
Motorcar Parts and LKQ both carry a Zacks Rank #2 (Buy).
GENUINE PARTS (GPC): Free Stock Analysis
LKQ CORP (LKQ): Free Stock Analysis Report
MOTORCAR PARTS (MPAA): Free Stock Analysis
STANDARD MOTOR (SMP): Free Stock Analysis
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