Advance Auto Parts Stock: Old Vehicles Require Continued Maintenance (NYSE:AAP)

Pouring motor oil for motor vehicles from a gray bottle into the engine

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Advance Auto Parts, Inc. (NYSE:AAP) is a leading automotive aftermarket parts provider in North America. The types of products sold by the company include parts & batteries, accessories and chemicals, and engine-related maintenance products, such as air filters and transmission fluid. Their customers include both professionals and DIYers. As of December 31, 2021, sales to professionals accounted for nearly 60% of total net sales.

As an aftermarket parts supplier, AAP benefits from providing automotive solutions to older vehicles that need more continuous repairs & maintenance. In the current market environment, AAP is poised to benefit from widespread affordability constraints of purchasing a vehicle.

In May 2022, the average new-vehicle transaction price is expected to reach nearly +$45K, which would be up 16% from 2021. Prices for used cars offer no better alternative, with prices up nearly 30% from January 2021. As such, there is a greater likelihood of individuals holding onto their cars for as long as they can. In fact, the average age of vehicles on U.S. roadways reached a record high of 12.2 years in 2021. For AAP, this means increased demand for brakes and brake pads, batteries, tires, and other accessories.

AAP also benefits as total vehicle miles traveled increases. In 2019, total miles driven reached 3.26T, before plummeting to 2.83T during the height of the COVID-19 pandemic. The data has since improved and is now at or near 2019 levels. With increased travel comes greater maintenance requirements.

U.S. Federal Highway Administration, Moving 12-Month Total Vehicle Miles Traveled [M12MTVUSM227NFWA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/M12MTVUSM227NFWA, May 28, 2022.

U.S. Federal Highway Administration, Moving 12-Month Total Vehicle Miles Traveled [M12MTVUSM227NFWA], retrieved from FRED, Federal Reserve Bank of St. Louis

With the wind at their back from an aging vehicle fleet and total miles driven, one would not expect AAP to be underperforming the broader market. Yet, AAP is down nearly 20% YTD, which is worse than the S&P’s 13% decline over the same period. For investors seeking an under-the-radar play in the automotive sector, AAP is one name worth extra attention.

Earnings Review and Other Reportable Events

In the first quarter ended April 23, 2022, AAP reported total net sales of +$3.4B, which was up 1.3% from the same period last year, but +$20M short of estimates.

Through the first ten weeks of the year, AAP had a strong start, with YTD comparable store sales up mid-single digits. The final six weeks, however, came under pressure from flagging DIY sales, resulting in mid-single digit declines in comparable sales.

Weighing on the DIY comparisons were the impacts of economic stimulus payments in the prior year and a slower start in the current period, especially in the northern regions, due to colder and wetter weather patterns.

Despite weakness in DIY, overall comparable store sales were up 0.6% from the prior year and 25.3% on a two-year basis. The increase represented the 8th consecutive quarter of comparable store sales growth. Likewise, both adjusted operating income and adjusted EPS grew for the 8th straight quarter.

Gross profit margins came in at 44.6%, which was

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Keeping On To State-of-the-art Car Sections Is Presently Way To Go (NYSE:AAP)

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I feel Advanced Vehicle Elements Inc (NYSE:AAP) is a inventory to maintain on to supplied the macroeconomic climate upon us. The stock is a harmless hedge to cushion versus inflation and substantial-curiosity charges, although simultaneously becoming exposed to sizeable expansion alternatives with the slowdown in motor vehicle purchases. Having said that, due to the fact this development is tied in only to the present economic instances, and is not very likely to maintain past these conditions, I believe that AAP is not a buy and alternatively is a keep.

Company Overview

Superior Car Pieces, Inc. is a US-dependent motor motor vehicles aftermarket areas supplier, that has been publicly investing given that 2002. Valued at around $12 billion in terms of marketplace capitalization, and obtaining around 41,000 complete-time staff, AAP is among the biggest automotive sections firms in the United States. The enterprise holds a world wide existence with its core working segments divided as follows:

  1. Carquest US
  2. Carquest Canada
  3. Independents
  4. Worldpac

These have been segmentalized in this way presented the equivalent nature of retailers, as nicely as similarities in economic and operational features that are prevalent inside them. Similarly, the focus on current market that AAP is concentrated on, is bifurcated into the qualified installers sector segment, as properly as the Diy current market segment.

AAP has long gone by means of several swings in new a long time, with market members reacting appropriately to wider scale market events. These traits are reflected in the AAP price craze indicated below:

AAP stock chart

TradingView

Like the wider stock sector, AAP took a sizeable strike in early 2020 with the outbreak of the COVID-19 pandemic, which rebounded shortly immediately after, next which the stock took on a 12 months-lengthy bullish route that had witnessed minor dips together the way, each and every of which that was immediately reversed.

In February 2022, the stock experienced taken an additional considerable strike, shedding virtually 17% in a mere 20 days, of which just about 15% had been recovered in the subsequent climb main up to Might 2022. Early May well thereafter introduced one more considerable strike to the stock, nearing the 10% mark. These sector swings are principally triggered by problems by the industry that tie into world wide inflationary pressures, as perfectly as indications by the federal reserve to aggressively push up desire prices to ranges not recorded in the very last 20 many years.

AAP and Broader Macroeconomic Shifts

There is understandably urgent worry amongst inventory markets in normal about the modern news, about record-higher ranges of inflation, and the subsequent responsive steps underneath thing to consider by the US Federal Reserve. Provided the inflation impacting the automotive current market in early 2022, the rate of autos has climbed by virtually 12.5% in a mere 12-thirty day period time span, in accordance to the US Bureau of Labor Statistics.

Chart, bar chart Description automatically generated

US Bureau of Stats

The most seriously hit section in the automotive market place is that of

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