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Roth sidelined on Advance Auto Parts as margin recovery narrative fades

Roth sidelined on Advanced Auto Parts (AAP) as margin recovery narrative fades


By Michael Elkins

Roth lowered their investment rating on Advance Auto Parts Inc (NYSE:AAP) to Neutral (from Buy) and cut their price target on the stock to $140.00 (from $180.00) following an impressive 4Q report from competitor O’Reilly Automotive Inc (NASDAQ:ORLY).

Roth can no longer dismiss the serial underperformance of AAP as market share seems to be unwinding quickly as competitor pricing actions kick in. O’Reilly and AutoZone (NYSE:AZO) are pressing commercial price investments more and more, given their return is paying off markedly in well above historical comp sales gains. Now without the backdrop of an improving top-line, Roth sees the AAP margin recovery narrative fading, compounded by LIFO flow-through and a still heavy operating footprint. Management has already messaged it is falling shy of its 10.5-12.5% EBIT margin target near-term.

Roth analysts wrote in a note, “Our call on AAP initially worked over the late summer months before competitive price actions gained more and more traction. Following these notable changes – particularly within the commercial side of the business – we see further share unwinding for AAP. A more muted topline outlook for the company now puts the margin expansion story at risk and leaves us on the sidelines. We recommend investors looking for auto parts exposure to go with the higher quality operations of O’Reilly (ORLY) and AutoZone (AZO), and their continued above trend market share gains.”

Roth currently models 4Q comps of (3%) for AAP. Full-year EPS estimates sit somewhere in the $11-12 range (consensus at $12.74).

Shares of AAP are down 0.55% in mid-day trading on Monday.

Shares of ORLY and AZO are trading up 2.27% and 0.71%, respectively.


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