AutoZone and 3 Other Auto Parts Stocks That Look Like Buys

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Morgan Stanley recently upgraded AutoZone, citing its ability to pass on higher prices to consumers.


Andrea Morales/Bloomberg

Auto parts retailers have outpaced the market for much of the pandemic. Current economic uncertainty should keep the group in the fast lane.

The share price of one such retailer,

AutoZone

(ticker: AZO), is up 1% this year. The stocks of

Advance Auto Parts

(AAP),

O’Reilly Automotive

(ORLY), as well as NAPA Auto Parts owner

Genuine Parts

(GPC) are all in the red in 2022. But with the exception of Advance Auto, they have held their ground better than the S&P 500, which is down about 20%.

Auto parts retailers have a reputation as defensive stocks—after all, car repairs can only be delayed so long, even during a downturn. There are reasons to think the stocks can keep outperforming.

“When you can buy these stocks at these prices, there’s an asymmetrical risk/return,” says Max Wasserman, founder of Miramar Capital, which owns shares of Advance Auto Parts and Genuine Parts. ”Yes, they could go down a little further, but the upside is much higher.”

Having a running car remains essential for most Americans. That gives them the incentive to keep repairing their cars, even as the vehicle fleet ages. The average car is more than 12 years old, according to S&P Global Mobility. Genuine Parts has estimated older models tend to require $800 a year in maintenance.

That is unlikely to change anytime soon. Consumers tend to delay big-ticket purchases like cars when they’re less confident about the economy, while the average price of a new car surged to $47,000 from $38,000 during the pandemic as chip shortages crimped vehicle output. Used cars hit record prices, putting them out of reach for many.

Company / Ticker Recent Price YTD Change 12-Mo. Forward P/E 2022E EPS Growth** Market Value (bil)
Advance Auto Parts / AAP $178.75 -25% 12.8 14% $10.8
AutoZone / AZO* 2,125.33 1 17.5 21 41.4
Genuine Parts / GPC 135.45 -3 17.0 13 19.2
O’Reilly Automotive / ORLY 630.52 -11 18.4 6 41.4

*Fiscal year ends in August **Year over year

Source: FactSet

The 2007-09 recession underscored the resilience of auto parts stores. The overall stock market fell roughly in half, but with the exception of Genuine Parts, auto parts retailers were largely unscathed. Shares of AutoZone and Advance Auto held their value during the downturn, while O’Reilly stock lost just 10%.

“While consumer spending in the auto parts segment did decline during the Great Financial Crisis, it declined less than overall durable goods and recovered faster” than both durable goods and overall personal consumption, notes Morgan Stanley analyst Simeon Gutman.

Nor is the specter of electric vehicles—which tend to be trickier for do-it-yourself repairs—a worry for auto parts retailers, analysts say. EVs and hybrids combined accounted for about 10% of U.S. auto sales last year, while less than 1% of cars on U.S. roads are electric.

“Absolutely EVs will proliferate; it’s not a silly argument, but it’s going to

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

deepblue4you/E+ via Getty Images

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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Global Additive Manufactured Polymer Automotive Parts Market Report 2022 – Impact of the Rise of Electric Vehicles

DUBLIN, May 03, 2022–(BUSINESS WIRE)–The “The Market for Additive Manufactured Polymer Automotive Parts: Europe and North America Regions” report has been added to ResearchAndMarkets.com’s offering.

The automotive market is one of the longest-standing users of 3D printing technology, has been one of the first to produce rapid prototypes, then rapid-tooling.

Today, a convergence of several technological, market and environmental trends is radically transforming the automotive industry, and 3D printing is being turned to as a critical tool to enable this transformation, from the transition to electric vehicles (EVs) to the drive towards making supply chains more sustainable.

This report analyzes the future of 3D printing of polymers within the automotive industry through the lens of megatrends that are already having profound effects on the supply chain, design cycles and market strategies of the world’s biggest automakers.

By strategically assessing the automotive value chain, this report identifies the areas of opportunity for 3D printing adoption and growth, and forecasts the long term revenue potential for 3D printing hardware and materials within the automotive industry focusing on jigs, tools and end-use parts.

This report will be followed by a publication of 3D-printed metal parts for the automotive industry.

Key Topics Covered:

Chapter One: Opportunities for AM in the Automotive Industry: A Strategic Appraisal of the Value Chain

1.1 AM and the segmentation of the automotive value chain

1.1.1 Upstream opportunities: Rapid prototyping and supporting the design process

1.1.2 Midstream opportunities: Supporting the manufacture of parts through indirect process support or direct additive manufacture of parts.

1.1.2.1 Production support assets

1.1.2.2 Low volume production runs

1.1.2.3 Customization

1.1.2.4 Advanced part designs

1.1.3 Downstream opportunities

1.1.3.1 Mitigation of obsolescence

1.1.3.2 Digital inventory management

1.1.3.3 Distributed aftermarket production

Chapter Two: Impact of Major Automotive Trends on Additive Manufacturing Polymer Adoption

2.1 Rise of electric vehicles

2.1.1 The effects on the value chain moving from ICE to EV construction

2.1.2 Opportunities for AM in EV part and assembly design

2.1.3 AM within native EV and mixed EV/ICE assembly lines

2.1.4 New entrants enabled by low-volume and flexible additive manufacturing

2.2 Autonomous driving technology

2.2.1 Opportunities for 3D printing in autonomous vehicle development

2.2.2 Mass reduction opportunities for AM

2.2.3 How AM can support a mass-reduction strategy

2.3 Commitments to decarbonisation, supply chain sustainability and the “race to zero”

2.3.1 Reduction of non-recyclable materials and plastics in vehicle design

2.3.2 How AM materials and hardware providers can meet the demand for recycled materials

Chapter Three: Material Assessment for 3D-Printed Polymer Parts in the Automotive Industry

3.1 Evolution of materials within AM industry

3.1.1 Composite materials

3.1.2 Advanced materials

3.2 Eight-year materials forecasts

3.2.1 Thermoplastic filaments

3.2.2 Thermoplastic powders

3.2.3 Thermoset resins

3.2.3.1 VAT resins

3.2.3.2 Jetted resins

3.2.4 Distribution material by region

3.2.5 Eight-year CAGR

Chapter Four Polymer 3D-Printing Hardware for the Automotive Industry

4.1 Developments in key AM technologies in automotive

4.1.1 Powder bed systems

4.1.2 Material extrusion

4.1.3 VAT systems

4.1.4 Material jetting

4.2 Eight-year forecast for AM hardware

4.2.1

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Best Displays at The 2022 eBay Car Parts Display

The automotive entire world is (like most other industries) working with seemingly under no circumstances-ending shortages and supplier markups. Amid this local weather, eBay Motors threw its very possess New York Car Elements Clearly show past week, celebrating hare-brained Do it yourself initiatives that includes automobiles and parts purchased, by natural means, through its individual system. The aim was to show that the finest “new” automobile on the road can commence with one particular that presently exists. Right here are the strange and amazing exhibits that caught our eye.

A Scorching Vapor Engine

If you’re at all intrigued in NASCAR folklore, you have no question listened to of Smokey Yunick. He was an engineering genius that turned stock auto racing on its head thanks to his bold—and often blatantly illegal—interpretations of the 1960s guidelines and regulations. However, when he wasn’t offering NASCAR staff a headache at tech inspection, he was similarly dedicated to fettling with road cars.

Just one this kind of undertaking involved the warm vapor engine. Inherent in its title, it would vaporize the gas prior to it was shot into the cylinder head to enhance effectiveness and electricity. In its hay working day, the powerplant generated a promised 250 horsepower and 250 foot-lbs of torque. Great ability, but it also could do just less than 50 mpg. It also didn’t need a catalytic converter due to the fact it burned virtually all of the gasoline that entered the cylinder head.

By now you’re almost certainly thinking why the warm vapor engine hardly ever caught on—especially with individuals crazy efficiency and electric power figures. It’s explained that the astronomical temperatures demanded for the concept to operate necessitated innovative metallurgies that would’ve been too pricey for a manufacturing vehicle. Hot vapor engines also labored super shut to their breaking position, meaning any minor concern like inappropriate air/gasoline ratio or temperature would guide to instant engine failure.

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Loaded Rebuild’s V8-Swapped Tesla

If you’re a common print reader, you saw this beast on the go over of our March/April problem. It was terrific to capture up with the male behind the job, Wealthy Benoit (a.k.a. Rich Rebuilds) and have him wander me by this incredible piece of machinery in human being.

For individuals who are unaware, the impetus for this sort of a outrageous vehicle started as just a different 1 of Benoit’s ridiculous Tesla pieces-bin specials. The person and his crew have made a name for themselves by custom creating Elon’s autos from the components of Teslas that had possibly been crashed, flooded, or any other number of matters that lead to their demise. Immediately after getting a flood-damaged Tesla Product S P85D, its existing powertrain desired considerably extra than a rice tub to conserve it. That’s the place they got the hare-brained idea to swap in the LS3 V8 motor from a crashed Chevrolet Camaro.

1 of my preferred bits—among many—is the simple fact that the cooling at the entrance of the automobile continues to

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LG-Magna JV to make EV parts in Mexico for GM

Canadian supplier Magna Worldwide Inc. and South Korea’s LG Electronics Inc. broke ground now on a manufacturing facility in Mexico that will supply elements for General Motors’ electric powered motor vehicles, the companies reported nowadays.

LG Magna e-Powertrain, the joint undertaking designed in 2021 between the two providers, designs to open a 260,000-square-foot plant in Ramos Arizpe, Mexico, by 2023. The plant will use about 400 men and women developing inverters, motors and on-board chargers for GM, the companies mentioned in a statement.

“In the room of just above a person year, we’ve additional an expansion arrangement, recognized a strategic site to help our purchaser, and are now in the procedure of noticing our ideas,” Magna Powertrain President Tom Rucker mentioned in a statement.

“The developing of a new facility is a legitimate testament to the strength of this collaboration and dedication in delivering innovative answers to shoppers to satisfy their problems.”

The plant’s groundbreaking arrives approximately a year and a 50 % soon after LG and Magna introduced their joint venture in December 2020 and fewer than a year following the deal shut in July 2021. The undertaking, reportedly valued at about $1 billion in 2020, employs 1,300 individuals globally, in accordance to a information release.

The value of the production expense was not disclosed, nor was it instantly crystal clear which GM autos or assembly vegetation the LG-Magna manufacturing facility will offer. A Magna spokeswoman declined to remark.

GM has strategies to create EVs at its Ramos Arizpe plant by 2023, the same calendar year the LG-Magna factory is expected to be up and working. The automaker explained last 12 months that it would commit about $1 billion to retool that plant for EV generation.

The GM Ramos Arizpe plant is anticipated to begin output of an electric powered Chevrolet Blazer product in mid-2023, followed by the Chevy Equinox EV later on that yr, and then a product for Honda in 2024, according to AutoForecast Options LLC.

LG-Magna e-Powertrain termed GM its “foundational client” for the new manufacturing facility, saying it will participate in a “vital part in GM’s journey to develop a robust, scalable, sustainable and North The united states-focused EV provide chain.”

“The JV’s ongoing achievement will enable us to improved guidance our buyers with finest-in-class elements for the upcoming era of electrical automobiles, and enable us to expand our presence in the fast-growing worldwide EV current market,” LG-Magna CEO Cheong Gained-suk reported in a assertion.

Magna ranks No. 4 on the Automotive News record of the best 100 world-wide suppliers, with throughout the world pieces gross sales to automakers of $32.65 billion in 2020.

Hannah Lutz contributed to this report.

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Volvo seems past China for car or truck parts as lockdowns distribute

Volvo Automobiles has started sourcing alternate options to its Chinese-manufactured areas as coronavirus lockdowns now spreading across the state add a new supply chain threat to an auto business that has been beset by them around the past 12 months.

The enterprise started off double sourcing parts that are acquired in China in a bid to shield its functions from potential disruption, according to main government Jim Rowan.

“The longer the pandemic stretches the a lot more uncertainty there is. We have previously applied a approach of ‘make where we sell’ and ‘source in which we make’,” he stated.

“We have currently started a programme some months in the past to resource much more factors out of China so that we’re double sourcing, but that does not come about right away,” he included.

Carmakers typically invest in components from a one service provider, which they ship to factories underneath a “just-in-time” model that lowers the have to have to retail outlet parts in warehouses. Even though more affordable, it is a design that has remaining the business significantly uncovered to source chain disruptions around the past yr, notably mainly because of a lack of semiconductors and, far more not long ago, Russia’s invasion of Ukraine.

Volvo’s hard work to insulate its supply chain arrived as it noted that 1st-quarter sales dropped 20 for every cent to 148,000 since of a shortage of chips. Revenues, nonetheless, rose 8 for every cent to SKr74.3bn (£6bn) simply because of much better pricing and income from Polestar, the electric powered model that Volvo jointly owns with Geely.

The chip scarcity also led to challenges sourcing one particular specific ingredient that will have an affect on output until finally the summer season, Volvo additional, as it noted that web earnings dropped 30 for each cent to SKr4.5bn. The field expects the chip situation to ease in the second fifty percent of the yr.

The company mentioned that about 8 for each cent of its styles in the initial quarter have been thoroughly electric, regardless of the group attempting to prioritise battery vehicles with the chips it is in a position to supply.

“Underlying demand for our BEV [battery electric vehicle] items is unbelievably superior, if we experienced source it would be even higher,” stated Rowan.

The marque would like to produce only electrical cars and trucks by the conclude of the ten years, and Rowan stated he anticipated volumes to boost as infrastructure was rolled out and Volvo introduced new battery styles.

Just one in a few cars bought in the quarter was hybrid or electrical, although the degree strike 100 for each cent in some marketplaces which include Norway, Brazil and Thailand.

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