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Advance Auto Parts (AAP) Face Expense Woes: Time to Sell?


On Sep 13, we issued an updated research report on Advance Auto Parts, Inc. AAP.

This Roanoke, VA-based company is engaged in automotive aftermarket industry, and sells replacement parts, accessories, batteries and maintenance items for cars, vans, sport utility vehicles, light and heavy trucks. Over the past 30 days, the stock has seen the Zacks Consensus Estimate for current-quarter earnings being revised 23.2% downward to $1.24 per share. During the same time, the Zacks Consensus Estimate for current-year earnings declined 17.9% to $5.18 per share.

The company is witnessing a rise in selling, general and administrative (SG&A) expenses. The rise can be attributed to higher investments in customer-focused strategies. Also, elevated expenses pertaining to medical, insurance and support center worsened the situation. Auto Parts has underperformed the industry it belongs to over the last six months. The company’s shares have lost 34.6% compared with a 21.7% decline registered by the industry.

Also, improved quality of new vehicles is a cause for concern for the company. Enhanced quality of new vehicles can result in lower demand for repair and maintenance parts, as customers are likely to buy new vehicles instead of maintaining old ones. This is adversely affecting the sales of Advance Auto Parts.

Also, in the in the second quarter of fiscal 2017 (ended Jul 15, 2017), Advance Auto Parts reported a 16.8% decline in adjusted earnings to $1.58 per share compared with $1.90 in the prior-year quarter. The figure also missed the Zacks Consensus Estimate of $1.65.

Advance Auto Parts currently carries a Zacks Rank #5 (Strong Sell).

A few better-ranked automobile stocks are Toyota Motor Corp. TM, Daimler AG DDAIF and Volkswagen AG VLKAY. While Toyota and Daimler sport a Zacks Rank #1 (Strong Buy), Volkswagen carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Toyota has a long-term growth rate of 7%.

Daimler has an expected long-term earnings growth rate of 2.8%

Volkswagen has an expected long-term earnings growth rate of 8.9%

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