Consumer Stocks Closing With Big Gains; Advance Auto Parts' Acquisition Lauded by Moody's, Analysts

Consumer stocks are ending 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.

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

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