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Jacob Maslow
Jacob Maslow
Articles (187)  | Author's Website |

What’s Behind Advance Auto Parts’ Rally?

The stock has climbed over 50%

December 18, 2018 | About:

Advance Auto Parts Inc. (NYSE:AAP) has gained more than 50% year to date, but the company’s stock tumbled more than 10% between Nov. 19 and Dec. 17. The stock has underperformed the S&P 500 during this time, and the negative trend has remained a concern for investors.

The stock’s most recent slide came after a positive third-quarter earnings release. The company posted adjusted earnings of $1.89 per share, up from $1.43 in the prior-year quarter. Net revenue rose 4.3% to $2.3 billion, with comparable store sales rising 4.6%.

The most recent slide has more to do with market conditions than the company’s performance.

Softening demand in 2017 led to auto stocks suffering headwinds and ending the year lower. Advance Auto dropped over 40%. The stock's rally in 2018 has a lot to do with the company’s share price moving into correction territory as the auto parts market recovers.

Advance Auto suffered the most significant losses in the industry in 2017, while AutoZone (NYSE:AZO) and O’Reilly (NASDAQ:ORLY) suffered losses of 9.9% and 13.6%.

The only major incident in recent weeks that would cause headwinds for the company was an accident at one of the company’s distribution centers, which led to one employee dying. Workers' compensation death benefits may help the company absorb the impact on any lawsuits that may have otherwise arisen due to the incident.

The incident did little to impact the company’s stock ahead of the winter season.

Rising demand has been the driving factor behind Advance Auto’s rally ahead of the winter season, which sees an increase in demand in the industry. Steep tariffs will remain a concern going into 2019 as they could result in lower profit margins.

The company has focused heavily on turning around revenue and profits in 2018 thanks to improved customer value propositions. The company’s lower tax rate has also helped increase earnings per share.

Do-it-yourself retail and online avenues remain strong, and a partnership with Walmart (NYSE:WMT) will allow the company to reach an additional 100 million potential customers every month. The partnership is expected to help Advance Auto increase its market share. Earnings are expected to rise over 18% per year over the next five years, with the company’s adjusted earnings per share rising as much as 32% since 2017.

Revenue is expected to grow 2% in 2019.

Disclosure: The author does not own any stakes in the listed equities.

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About the author:

Jacob Maslow

Jacob Maslow is a writer who began his career as a payroll manager. The same affinity for numbers that originally led him to an early career in accounting now comes in handy when it comes to understanding and working with marketing analytics.

A native of New York, Maslow is now based in the Middle East, where he lives with his wife and five children and provides high-quality services to clients in a variety of industries, including the legal, medical and financial sectors.

In addition to his marketing and consulting work, Maslow has founded a variety of news websites, including Legal Scoops. He is a frequent contributor to a variety of publications.

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