Look for AAP's revenue to increase a healthy 6% to 8% in FY2010, driven by both same store sales gains and the opening of about 100 new stores.
Second, 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 in favor of Advance Auto. Pent-up demand will also aid AAP in 2010: some Americans who delayed maintenance in 2009 will now, perhaps as a result of an improved financial situation, get that maintenance done in 2010.
The First Call FY2009/FY2010 EPS estimates for AAP are $3.07 to $3.29. Each EPS looks a tad low, according to my analysis.
Technically, as outlined months ago, Advance Auto's stock was the victim of some year-end profit-taking by short-term institutional investors (IIs), which drove shares down to about $36. That profit-taking appears to be over, as AAP has moved back above the key, 50-day moving average.
2010 Outlook: I view Advance Auto as a long-term play, but if investors are looking to sell AAP within the year, it's probably best to take your profits after it rises to $48-49, if it fails to rise above $50.
Stock Analysis: I consider Advance Auto Parts to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, if I liked Advance Auto Parts, I'd consider buying a 25% position in AAP now; then buy another 25% in one month, if U.S. economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 75% of my AAP position before April 2010 and I'd put a sell/stop loss at: $22.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.