Sector Update: Consumer

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Consumer stocks are higher this afternoon with shares of consumer staples companies in the S&P 500 gaining 1.1%. Shares of consumer discretionary firms in the S&P 500 are climbing 1.0%.

In company news, Advance Auto Parts Inc. ( AAP ) is holding on to a 16.9% advance at $96.40, easing from its new 52-week high of $99.30 that followed the auto-parts retailer announcing a deal to acquire privately held rival General Parts International Inc. for $2.04 billion in cash.

The deal not only is receiving strong support from investors, Moody's Investors Service weighed in by re-affirming AAP's investment grade Baa3 credit rating, describing the acquisition as a "value-adding and sensibly-priced transaction."

Also today, Bank of America raised its rating for AAP shares to Buy from Neutral and increased its price target by $25 to $115 a share.

According to Moody's vice president Charlie O'Shea, the deal boosts AAP scale as a retailer, adding over 2,700 Carquest outlets now operated by General Parts, as well as expanding its commercial and wholesale operations.

Moody's has a few cautionary observations, acknowledging the deal - at least temporarily - will stress the company's credit profile after taking on roughly $1.4 billion in new incremental debt. AAP, however, has promised to quickly repay a substantial portion of the financing from its free cash flow. It also will likely suspend its stock buybacks until its credit metrics return to pre-acquisition levels, Moody's said.

In other sector news,

(+) LUK, Prices $750-mln offering of 5.5% senior notes due 2023 at 98.641% of par. Net proceeds will be used to redeem the company's 8.125% senior notes due 2015.

(-) SWK, Q2 earnings of $1.39 per share, ex items, trailing forecasts by $0.01. Revenue rose 9.6% year over year to $2.8 billion, roughly in-line with analyst consensus. Also, R.W. Baird lowers its rating for SWK to Neutral from Outperform.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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Referenced Stocks: AAP

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