Advance Auto's stock appears to be the victim of some tad-early, year-end, profit-taking by short-term institutional investors (IIs). AAP posted Q3 EPS of 65 cents -- very close to the First Call Q3 EPS estimate of 66 cents; AAP also reported a 4.7% increase in same store sales in Q3. The two data points helped AAP recover slightly from its $47 to $37 swoon, with shares now trading at/near $39.50, supporting the analysis that the preceding plunge has the look of selected institutions 'getting out, early' ahead of the December crush.
The First Call FY2009/FY2010 EPS estimates for AAP are $3.07 to $3.27.
Moreover, given the used-car maintenance trend in the U.S. -- many Americans, unable to buy a new car will be driving their used cars longer -- the risk/return remains tipped decidedly toward the buy for Advance Auto, with revenue likely to increase 5-7% in FY2010. Hence, ignore the short-term sell-off as just static: AAP should push through $50 in 2010.
Stock Analysis: Advance Auto Parts is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in AAP now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your AAP position before February 2010. Sell/Stop Loss if you were to buy shares in this company: $22.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.