The surge in demand for auto parts, which is being propelled by a consumer preference trend to buy used cars or repair existing cars rather than shell-out on new vehicles, technological advancements in auto parts fabrication, and the strengthening of digital sales outlets, is powering the growth of the auto parts industry. The auto parts market is expected to reach $299.98 billion by 2025, registering a 2.99% CAGR.
High-quality automotive parts replacements often offer vehicle owners better fuel efficiency, greater durability, and acceleration performance. Furthermore, the new trend in DIY automotive parts and products is also driving the sales of auto parts companies.
Therefore, we think it could be wise to bet on fundamentally sound auto parts stocks LKQ Corporation (LKQ) and The Goodyear Tire & Rubber Company (GT).
LKQ Corporation (LKQ)
LKQ offers replacement parts, components, and systems used in the repair and maintenance of vehicles. The Chicago-based company operates through three segments: LKQ North America; Specialty; and LKQ Europe. In addition, it provides recreational vehicle appliances, towing hitches, truck bed covers, vehicle protection products, cargo management products, wheels, tires, and suspension products.
In July, LKQ’s board of directors approved a $1 billion increase and a two-year extension in its stock repurchase program, bringing the total authorization under the program to $2 billion and allowing repurchases to continue through October 25, 2024. The move is an indication of the company’s robust financial health.
During the third quarter, ended September 30, 2021, LKQ’s sales increased 8.2% year-over-year to $3.3 billion. The company’s gross margin grew 12.1% from its year-ago value to $1.34 million. Its operating income rose 27.8% from the prior-year quarter to $378.15 million. Also, the company’s net income increased 46.4% year-over-year to $284.01 million.
LKQ’s revenue is expected to increase 11.8% year-over-year to $13 billion in its fiscal year 2021. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. The company’s EPS is expected to increase 51.8% in the current year. Also, LKQ's EPS is expected to grow at a 33.5% rate per annum over the next five years. The stock has gained 51.1% over the past nine months and 53.6% over the past year.
LKQ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has a B for Quality and Sentiment.
In addition to the POWR Rating grades I have just highlighted, one can see LKQ’s ratings for Value, Stability, Growth, and Momentum here. The stock is ranked #3 of 66 stocks in the Auto Parts industry.
The Goodyear Tire & Rubber Company (GT)
GT is an Akron, Ohio-based manufacturer and distributor of tires and related products worldwide. The company offers various lines of rubber tires for automobiles, aircraft, earthmoving and mining equipment, and various other applications under the Goodyear, Dunlop, Kelly, Debica, Sava, Fulda, and other Goodyear owned house brands. In addition, GT operates approximately 1,000 retail outlets to provide repair and other services.
This month, GT and the Stark Area Regional Transit Authority (SARTA) collaborated to test intelligent tire sensors and prototype tires on SARTA’s fleet of diesel and zero-emission hydrogen fuel cell-powered (HFC) buses. With this test, GT will be gaining valuable data on the ways tires can impact the safety, sustainability, and efficiency of public transportation.
GT’s net sales increased 42.4% year-over-year to $4.93 billion for the third quarter, ended September 30, 2021. The company’s net income came in at $132 million, compared to a $2 million net loss in the prior-year quarter. Its EPS amounted to $0.46, compared to a l $0.01 loss per share in the third quarter of 2020. Also, the company’s cash and cash equivalents came in at $1.19 billion for the six months ended September 30, 2021.
GT’s revenue is expected to increase 38.7% year-over-year to $17.1 billion in its fiscal year 2021. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. GT’s EPS is estimated to increase 186.9% in the current year and 51.8% next year. The stock has surged 64.9% in price over the past nine months and 120.9% over the past year.
GT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Growth, and a B grade for Value.
In addition to the POWR Rating grades I have just highlighted, one can see GT’s ratings for Stability, Quality, Sentiment, and Momentum here. GT is ranked #16 in the Auto Parts industry.
Click here to check out our Automotive Industry Report for 2021
LKQ shares were trading at $57.51 per share on Thursday morning, up $0.68 (+1.20%). Year-to-date, LKQ has gained 63.91%, versus a 25.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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