Advance Auto Parts (AAP, Financial) is satisfied with its recent results. The company improved across key metrics, delivering strong comp store sales. This clearly indicates that the aftermarket industry is gaining momentum, and with the anticipated recovery in oil prices, along with the favorable U.S. economy, it is going to reach new heights in the future. Another noticeable fact about Advance Auto Parts is a solid 46% growth in the comparable cash EPS. This should attract investors leading it to gain market share in the future. In addition, Advance Auto Parts expects better synergies from its General Parts acquisition in the past and will look for better performance in future. Let us see how.
Growth drivers
There are a number of factors that can help Advance Auto Parts grow. Many factors, including oil prices, growth in the auto market, and a recovering U.S. economy, can contribute meaningfully to its growth story in the future. Besides this, Advance Auto Parts is now taking several new steps to increase its customers. However, its previously started independent business, CARQUEST, turned out to be a strategic initiative for Advance Auto, which has indeed helped the company boost its business. Advance Auto Parts has entered 2015 with an optimistic outlook.
The company is relentlessly focusing on achieving the highest level of improvement in its base business. The base business is expected to witness new heights as the company is expecting the aftermarket industry to be favorable in 2015. On the other hand, the recovery in the U.S. economy is touching every industry.
This is also creating better job opportunities in the market, which is improving the purchasing capacity of the customers. With this, Advance Auto is able to visualize good opportunities in the future. In addition, Advance Auto thinks that decrease in gasoline prices should also provide a positive impact in the upcoming years.
The company has further plans to focus on the structural program improvement. This step will lead Advance Auto to improve its sales in 2015. In order to differentiate its position in the market, Advance Auto is planning to launch a combination of product, brand and service initiatives. The DIY market is also an important market for Advance Auto as it was an underperforming segment in the past. The company is now focusing on improving its performance in 2015, mainly through its speed perks launch and Omni channel work. Furthermore, to improve this segment, the company is now focusing imports and also investing in key growth aspects of the business.
Ecommerce is also a booming segment and the company thinks that its presence in this sector can help it grow its revenue in the future. Under this, it is making significant investments to develop its eService capabilities in 2015, which it believes will be a key differentiator for its customers in 2015.
Conclusion
Now moving to the fundamentals, the stock is reasonable with a trailing P/E of 22.56 while the forward P/E of 15.58 indicates good earnings growth in the near term. It is expected to gain further market share with a profit margin of 5.02%. In addition, the aftermarket industry is also showing positive growth signs which can further help the company to perform better. Considering a solid financial position as well as prospects, Advance Auto Parts is definitely a good pick as of now.
