Is There a Reason to Be Optimistic about Advance Auto Parts?

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On Jan. 29, the closing bell saw Advance Auto Parts (NYSE: AAP) shares drop to $74.57, a -1.80% change of $1.37. It ranged from a low of $74.49 to a high of $75.83 for that day, while the past 52 weeks saw it trade at a high point of $93.08 to a low of $60.87. In the third quarter of 2012, AAP lost its footing, with earnings per share falling by 14.2% to $1.21 mainly due to weakened sales in some major markets.

However, Advance Auto’s EPS did meet Zacks’ estimates for that particular quarter. The company’s income dropped heavily, from $105.6 million to $89.5, a 15.2% decline. Nevertheless, the beginning of 2013 saw Advance Auto Parts report its acquisition of BWP Distributors via a cash transaction, which could help the company in expanding sales and profits in the northwestern part of the US. This means that the operation of 124 BWP stores will be utilized in helping reposition itself in the auto retail market.

Ups and Downs

Near the end of 2008 all the way to April 2012, Advance Auto Parts’ share price grew by an impressive 262%, with auto manufacturing sales lagging over the same period. Since April 2012, shares of Advance Auto Parts slid a hefty 21%, while fellow retailers O’Reilly Automotive (NASDAQ: ORLY) and Autozone (NYSE: AZO) dropped by 17% and 13%, respectively, although these two companies experienced growths of 345% and 380%, respectively, when the market was booming.  Recent months, however, showed a paradigm shift with the auto sales overtaking sales at auto parts retailers, due to improvement in the job market and the comparative strength in general purchasing power. Consumers were in a better position to replace their clunkers with vehicles fresh out of the showroom.

O’ Reilly Automotive has reported fourth quarter earnings for 2012 on Feb. 7, with analysts expecting a larger EPS of $1.08 from $0.93 one year ago. For this year, EPS is pegged at $4.69, with revenue for the annum a potential $6.17 billion. It is rated by 62.2% of analysts as a stock to buy, with the automotive aftermarket retailer and supplier being in stiff competition with Autozone and Advance Auto.

Rival auto parts seller Autozone has returned more than 20% per year, with 2013 forecasted to grow a steady 17%; slightly on the modest side. Growth potential may also be a tad on the mediocre side due to the slew of – count ‘em – 5,000 sales locations, which may generate sluggish stocks and not too much in the way of additional stock value and profits for traders.

Auto Parts Retailers vs Automakers

The trend of automakers overtaking auto retailers, at least for the interim, caused analysts to predict a marginal increase in auto sales for the year. General Motors surged 60%, while Ford shot up by 56% since the dip in July of last year. Competitors Toyota and Honda have gained upwards of 25% since November 2012 due to the reduced power of the Yen. Will retailers be able to turn the tide and recover?

Will Advance Auto Parts Move Upward?

The lost ground, considering the stock’s history, indicates that it is not that difficult to recapture its glory from prior to the recession. It may still generate modest growth and profits through an eventual comeback, although it could take a while for Advance Auto Parts to recuperate and join the fold of some of the most in-demand stocks in the industry today. Based on growth , however, Autozone and O ‘Reilly may appear to be better short-term buys because they outdrove Advance in terms of stock decline and past performance; but for the long term, the latter’s plans for expansion may put it in the lead once again. 


RhodoraDagatan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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