The global chip shortage and supply chain disruptions have severely affected automobile production over the past one-and-a-half years, leading to a surge in prices of new and used vehicles. Logistical disruptions caused by the recent Russia-Ukraine war and higher loan costs due to the Federal Reserve’s policy tightening have further dampened the industry’s prospects.
However, rising fuel costs and government incentives is encouraging consumers to transition to electric vehicles, as evidenced by a 60% rise in the U.S. EV registrations in the first quarter of 2022. This should drive the performance of auto parts manufacturers even if the traditional auto market struggles. The global auto parts and accessories market is expected to grow at a 2.8% CAGR to$2.64 trillion by 2027.
Therefore, we think it could be wise to bet on fundamentally sound auto parts stocks Genuine Parts Company (GPC), Advance Auto Parts, Inc. (AAP), LKQ Corporation (LKQ), and Compagnie Générale des Établissements Michelin (MGDDY) now.
Genuine Parts Company (GPC)
GPC in Atlanta, Ga., distributes automotive replacement parts and industrial parts and materials for hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, farm vehicles, small engines, farm equipment, and heavy-duty equipment. The company provides various services and repairs comprising gearbox and fluid power and process pump assembly and repair, hydraulic drive shaft repair, electrical panel assembly and repair, hose and gasket manufacture and assembly, and other value-added services.
On April 13, 2022, GPC’s London-based automotive distribution company Alliance Automotive Group (AAG) acquired Lausan Group, a leading distributor of automotive aftermarket parts in Spain and Portugal. The acquisition will help GPC expand its European automotive footprint and further strengthen Lausan's market-leading position by capitalizing on GPC’s European scale, purchasing expertise, and leveraging the roll-out of its NAPA brand across the region. It expects Lausan to generate annual revenue of approximately $125 million.
GPC’s net sales for its fiscal 2022 first quarter, ended March 31, 2022, increased 18.6% year-over-year to $5.29 billion. The company’s gross profit came in at $1.83 billion, representing an 18.5% year-over-year improvement. Its pre-tax income came in at $325.72 million for the quarter, up 13.9% from the prior-year period. While its adjusted net income increased 22% year-over-year to $265.65 million, its adjusted EPS grew 24% to $1.86. It had $610.78 million in cash and cash equivalents as of March 31, 2022.
Analysts expect the company’s EPS to improve 13.3% year-over-year to $7.83 for its fiscal 2022, ending Dec. 31, 2022. GPC surpassed the Street’s EPS estimates in each of the trailing four quarters. The $21.17 billion consensus revenue estimate for the same fiscal year represents a 12.2% rise from the prior-year period. The company’s EPS is expected to grow at a 4.6% rate per annum over the next five years. Over the past three months, the stock’s price has increased 4.1% and closed yesterday’s trading session at $132.
GPC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Growth, Quality, Stability, and Sentiment. Click here to see the additional ratings for GPC’s Value and Momentum. GPC is ranked #2 of 69 stocks in the Auto Parts industry.
Advance Auto Parts, Inc. (AAP)
AAP in Roanoke, Va., is an automotive aftermarket parts provider that serves both professional installers, do-it-yourself (DIY) customers, and independently-owned operators. The company's stores and branches offer a selection of a brand name, OEM, and private label automotive replacement parts, accessories and chemicals, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light heavy-duty trucks.
On Feb. 14, 2022, AAP’s DieHard brand’s line of Absorbent Glass Mat (AGM) batteries became the world’s first automotive battery to receive circular economy validation. Used batteries collected at AAP’s retail stores undergo a recovery process, with plastics and lead recycled and used by Clarios, a provider of advanced battery technologies and energy storage solutions, to produce new DieHard AGM batteries. This initiative progresses AAP’s goal of bringing sustainability into the supply chain.
For its fiscal 2021 fourth quarter, ended Jan. 1, 2022, AAP’s net sales increased 1.4% year-over-year to $2.40 billion. Its non-GAAP gross profit came in at $1.12 billion, up 4.4% from its year-ago period. Its non-GAAP operating income came in at $176.84 million for the quarter, indicating a 9.3% year-over-year improvement. AAP’s non-GAAP net income was $129.96 million, representing an 8.7% rise from the prior-year period. Its non-GAAP EPS increased 17.6% year-over-year to $2.07. The company had $601.43 million in cash and equivalents as of Jan. 1, 2022.
Analysts expect the company’s EPS to hit $13.70 for its fiscal 2022, ending Dec. 31, 2022, representing a 14% rise from the prior-year period. It surpassed the Street EPS estimates in each of the trailing four quarters. The $11.40 billion consensus revenue estimate for the same fiscal year represents a 3.7% year-over-year improvement. Its EPS is expected to grow at a rate of 15.3% per annum over the next five years. Over the past three months, the stock has declined 10.4% in price and closed yesterday’s trading session at $196.07.
AAP’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Quality. Click here to see the additional ratings for AAP (Sentiment, Growth, Value, Momentum, and Stability). AAP is ranked #22 in the Auto Parts industry.
LKQ Corporation (LKQ)
Chicago-based LKQ is a distributor of vehicle products that include replacement parts, components, and systems used in the repair and maintenance of vehicles, specialty vehicle products and accessories, and automotive glass products. The company distributes recreational vehicle appliances and air conditioners, towing hitches, truck bed covers, vehicle protection products, cargo management products, wheels, tires, and suspension products. It serves collision and mechanical repair shops, new and used car dealerships, and retail customers.
For its fiscal year 2022 first quarter ended March 31, 2022, LKQ’s revenue increased 5.6% year-over-year to $3.35 billion. The company’s gross profit came in at $1.36 billion, up 4.9% from the prior-year period. Its operating income came in at $371 million for the quarter, indicating no change from the prior-year period. LKQ’s adjusted net income was $287 million, representing a 1% rise from the prior-year period. Its adjusted EPS came in at $1, indicating a 6.4% year-over-year improvement. The company had $327 million in cash and cash equivalents as of March 31, 2022.
Analysts expect LKQ’s revenue to grow 2.2% year-over-year to $13.37 billion for its fiscal 2022, ending Dec. 31, 2022. It surpassed the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to grow at a 33.5% rate per annum over the next five years. Over the past three months, the stock has gained 1.1% in price and closed yesterday’s trading session at $49.73.
LKQ’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Sentiment and Quality. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for LKQ’s Value, Stability, Growth, and Momentum here. LKQ is ranked #4 in the Auto Parts industry.
Compagnie Générale des Établissements Michelin (MGDDY)
MGDDY is a tire manufacturer that is headquartered in Clermont-Ferrand in the Auvergne-Rhône-Alpes region of France that offers tires for cars, racing, biking, motorcycles, scooters, and mopeds, and professional use, such as freight and people transport, agriculture, construction, and industrial, mining and quarries, corporate fleets, tradesmen and professionals, civil and military operations, light rail, and aircraft. It also provides tire-related services, mobility services, lifestyle products comprising car and bike accessories, shoe soles, sports and leisure gear, and high-tech materials including 3D metal printing, specialty, rubber, biosourced, and recycled materials.
On May 1, 2022, MGDDY launched the MICHELIN CrossClimate 2 SUV tire in Europe. This 3PMSF (3 Peak Mountain Snow Flake) certified tire is a new generation of 4-season tires that combine multiple performance and cope with temperature declines and an occasional snowfall. MGDDY should witness high demand for the tire in the coming months.
For its fiscal 2021 full year, ended Dec. 31, 2021, MGDDY’s sales increased 16.3% year-over-year to €23.80 billion ($25.17 billion). The company’s segment operating income came in at €2.97 billion ($3.14 billion), representing a 57.9% year-over-year improvement. Its net income came in at €1.85 billion ($1.95 billion), indicating a 195.2% rise from the year-ago period. MGDDY’s EPS increased 192.9% year-over-year to €10.31.
The $28.36 billion consensus revenue estimate for its fiscal year 2022, ending Dec. 31, 2022, represents a 5.5% rise from the prior-year period. Over the past three months, the stock has declined 20.5% to close yesterday’s trading session at $24.34.
MGDDY’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Quality, Stability, and Value. Click here to see the additional ratings for MGDDY (Value, Sentiment, Stability, and Momentum). The stock is ranked #3 in the Auto Parts industry.
GPC shares were trading at $125.98 per share on Friday afternoon, down $6.02 (-4.56%). Year-to-date, GPC has declined -9.49%, versus a -19.37% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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