Advance Auto Parts: Pull-back is buy opportunity

Posted Nov 30th 2009 5:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

Advance Auto Part's (AAP) stock has retreated about $7 since mid-summer, but I'm nevertheless reiterating my buy rating for the company, first recommended on May 19, 2009 at a price of $43.38. Here's why.

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.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: advance auto parts, AdvanceAutoParts, automobile, car repair, CarRepair, cars

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Reader Comments (Page 1 of 1)

12-01-2009 @ 8:42AM

chasfru4 said...

Bad advice.. Why would anyone shop Advanced/Autozone. They hire people who can not even look up parts. I have visited many of these stores in the past and end up looking my own parts up. These companies only care about the bottom line and not the quailty of the staff. These companies only look good because they have more stores to pad the bottom line. Big deal they add money from the delivery side. They get beat by most local companies in the areas they have stores. they need to have 4 or 5 stores in one area to beat a little local company. In the Boston market they had to buy companies to be able to compete.