The Market Loses its Pep
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Another stock bites the dust: Pep Boys-Manny, Moe and Jack (NYSE: PBY) announced it signed on with dealmaker Gores Group to take itself off the market. It's been a good, long trip for the venerable auto parts retailer, but it ends here for most of the firm's shareholders.
PBY's timing is good. Auto parts retailers are doing well in these economically weakened times, as consumers keep their existing rides on the road rather than buy new ones. Longer car life means more maintenance, hence increased spending on parts and components. Every major parts retailer has reaped the benefit of this, as have their results. The Peps saw nice annual bottom-line growth of nearly 60% in the last fiscal year on the back of a 4% uptick in revenues. Net growth wasn't quite that high for rivals AutoZone (NYSE: AZO), Advance Auto Parts (NYSE: AAP) or O'Reilly Automotive (NASDAQ: ORLY), however all three posted on or around 10% increases in their respective top line figures.
Pep Boys is expected to keep climbing in profitability, but not to the point where it would have made the stock compelling. EPS growth over the next two fiscal years was anticipated to be around 17%, meanwhile the forward P/E of the shares -- admittedly, post-announcement -- was a shade over 20. For the most part, the competition had higher expected growth figures and slimmer P/Es, with AutoZone leading the pack in both metrics (30% and 15.1, respectively).
Fundamentally speaking, PBY is more or less in the middle of its rivals. It tops the heap in a key category or two, like sales per store (more than 65% higher than its nearest rival -- again, AutoZone) and debt coverage. However its net margins are at the bottom of the pile, as is that anticipated two-year EPS growth figure.
The auto parts success story of the past few years will probably run for some time, at least until the economy makes a full(ish) recovery. So the Boys are making a smart move by unloading now. Meanwhile, the other shareholders should be happy for the resultant bump in the stock price. Now's a fine time to cash in on PBY; helpfully, most of the company's shareholders are now forced to do exactly that.
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