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Category: Stock Market and Advance Auto Parts (AAP)
Date: 10 November 2020 Stock Price: $156.73 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Advance Auto Parts, a provider of automotive aftermarket parts to professionals as well as do it yourself customers with over 4800 stores across North America and a few other global locations. The group reported revenues of $2.54 billion and net income of $147.5 million.
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While we believe all three major US stock market indices are horribly overvalued we do believe that the NASDAQ is the most overvalued of them all. The NASDAQ is loaded with large tech stocks and most of these are trading at extremely lofty valuations which has very rosy assumptions regarding the future earnings potential of these firms. Any revenue or profit expectations misses by any of these firms could see their stock prices plummet at a rapid pace as markets realise that tech stock valuations have gotten out of control. "
About Advance Auto Parts
Advance Auto Parts, Inc. is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. As of October5, 2019, Advance operated 4,891 stores and 152 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The Company also serves 1,260 independently owned Carquest branded stores across these locations in addition to Mexico, the Bahamas, Turks and Caicos and British Virgin Islands.
Overview of Advance Auto Parts 3rd quarter 2020 earnings report
- Net sales: $2.541 billion (up from $2.312 billion for the same quarter of the previous year
- Net sales increased by 9.9% over the last 12 months
- Cost of sales: $1.413 billion (up from $1.3 billion for the same quarter of the previous year)
- Cost of sales increased by 8.6% over the last 12 months
- Some margin gain for Advance Auto Parts as their net sales increased at a faster rate than their cost of sales
- Net income: $147.476 million (up from $123.669 million for the same quarter of the previous year)
- Diluted earnings per share: $2.13 (up from $1.75 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 69.267 million (down from 70.664 million for the same quarter of the previous year)
- Cash and cash equivalents: $1.068 billion
- Cash and cash equivalents per share: $15.41
- Cash and cash equivalents makes up 9.8% of Advance Auto Parts' market capital
- Cash and cash equivalents makes up 8.9% of Advance Auto Parts' total assets
- Accounts receivable: $843.054 million
- Accounts receivable makes up 7% of Advance Auto Parts' total assets
- Inventories: $4.36 billion
- Inventories makes up 36.5% of Advance Auto Parts' total assets
- Stockholders equity of Advance Auto Parts : $3.762 billion
- Stockholders equity per share: $54.31
- Advance Auto Parts is trading at 2.88 times its stockholders equity per share which is outside the expected range of between 2 and 4 that most firms tend to trade at
- For some perspective stocks in the S&P 500 trade at a price to book value of 3.8 times
- Cash generated from operations (for 9 months): $809.2 million
- Cash generated from operations per share (for 9 months): $11.68
Advance Auto Parts' management commentary on their 3rd quarter 2020 earnings report
RALEIGH, N.C.--(BUSINESS WIRE)-- Advance Auto Parts, Inc. (NYSE: AAP), a leading automotive aftermarket parts provider in North America, that serves both professional installer and do-it-yourself customers, today announced its financial results for the third quarter ended October 3, 2020.
“Never has it been more important for us to put the health and safety of our customers and team members first as COVID-19 continues to impact our communities and ongoing operations. As a result, we continue to adapt and take the steps necessary to prioritize the well-being of our customers and team members" said Tom Greco, President and Chief Executive Officer. "Our third quarter comparable sales growth of 10.2% is the strongest in 15 years, and was led by our DIY Omnichannel performance. Double digit comp sales combined with disciplined cost control resulted in 183 basis points of adjusted operating income margin expansion and a 95% increase in quarterly free cash flow. Industry demand remained strong in the quarter, however our performance is also a testament to the resilience of our team members and independent partners during the COVID-19 pandemic. While we cannot predict the direction of the pandemic from here, we remain laser focused on the execution of our long-term plans. This includes the introduction of our #DieHardisBack marketing campaign on October 18. The energy and excitement surrounding this integrated campaign has driven widespread coverage and recognition not only for DieHard®, but for the Advance and Carquest brands. Including DieHard, we’re building an increasingly differentiated assortment to complement our strong digital presence and a comprehensive suite of fulfillment options including over 6000 conveniently located stores and Advance Same Day™ delivery. We believe that these capabilities, combined with a strong balance sheet and talented team, position us well to continue to drive growth and margin expansion in the years ahead.”
“Never has it been more important for us to put the health and safety of our customers and team members first as COVID-19 continues to impact our communities and ongoing operations. As a result, we continue to adapt and take the steps necessary to prioritize the well-being of our customers and team members" said Tom Greco, President and Chief Executive Officer. "Our third quarter comparable sales growth of 10.2% is the strongest in 15 years, and was led by our DIY Omnichannel performance. Double digit comp sales combined with disciplined cost control resulted in 183 basis points of adjusted operating income margin expansion and a 95% increase in quarterly free cash flow. Industry demand remained strong in the quarter, however our performance is also a testament to the resilience of our team members and independent partners during the COVID-19 pandemic. While we cannot predict the direction of the pandemic from here, we remain laser focused on the execution of our long-term plans. This includes the introduction of our #DieHardisBack marketing campaign on October 18. The energy and excitement surrounding this integrated campaign has driven widespread coverage and recognition not only for DieHard®, but for the Advance and Carquest brands. Including DieHard, we’re building an increasingly differentiated assortment to complement our strong digital presence and a comprehensive suite of fulfillment options including over 6000 conveniently located stores and Advance Same Day™ delivery. We believe that these capabilities, combined with a strong balance sheet and talented team, position us well to continue to drive growth and margin expansion in the years ahead.”
Capital Allocation
During the twelve weeks ended October 3, 2020, the Company repurchased 0.7 million shares of its common stock at an aggregate cost of $109.6 million, or an average price of $153.06 per share, in connection with its share repurchase program. At the end of the third quarter of 2020, the Company had $752.2 million remaining under the share repurchase program.
On October 26, 2020 the Company declared a regular cash dividend of $0.25 per share to be paid on January 4, 2021 to all common stockholders of record as of December 18, 2020.
On September 16, 2020, the Company redeemed all $300.0 million aggregate principal amount of its outstanding 4.50% Notes due 2022. In connection with this early redemption, the Company incurred charges relating to a make-whole provision and debt issuance costs of $15.8 million and $0.3 million.
On September 29, 2020, the Company issued $350.0 million aggregate principal amount 1.75% Notes due 2027. Using the net proceeds from this issuance and pursuant to a cash tender offer that was completed on the same date, the Company repurchased $256.3 million of its 4.50% Notes due 2023. In connection with this tender offer, the Company incurred charges relating to tender premiums and debt issuance costs of $30.5 million and $1.4 million.
2020 Full Year Guidance
The Company withdrew guidance on April 9, 2020, given uncertainties related to the full impact of the COVID-19 pandemic. Due to continued volatility, the Company is not providing guidance at this time.
During the twelve weeks ended October 3, 2020, the Company repurchased 0.7 million shares of its common stock at an aggregate cost of $109.6 million, or an average price of $153.06 per share, in connection with its share repurchase program. At the end of the third quarter of 2020, the Company had $752.2 million remaining under the share repurchase program.
On October 26, 2020 the Company declared a regular cash dividend of $0.25 per share to be paid on January 4, 2021 to all common stockholders of record as of December 18, 2020.
On September 16, 2020, the Company redeemed all $300.0 million aggregate principal amount of its outstanding 4.50% Notes due 2022. In connection with this early redemption, the Company incurred charges relating to a make-whole provision and debt issuance costs of $15.8 million and $0.3 million.
On September 29, 2020, the Company issued $350.0 million aggregate principal amount 1.75% Notes due 2027. Using the net proceeds from this issuance and pursuant to a cash tender offer that was completed on the same date, the Company repurchased $256.3 million of its 4.50% Notes due 2023. In connection with this tender offer, the Company incurred charges relating to tender premiums and debt issuance costs of $30.5 million and $1.4 million.
2020 Full Year Guidance
The Company withdrew guidance on April 9, 2020, given uncertainties related to the full impact of the COVID-19 pandemic. Due to continued volatility, the Company is not providing guidance at this time.
Advance Auto Parts (NYSE: AAP) stock price history over the last 5 years
The image below shows the stock price history of Advance Auto Parts (NYSE: AAP) over the last 5 years. And it's been a pretty mediocre time for Advance Auto Parts stockholders. 5 years ago the stock was trading at around $161.00 and it is currently trading at $156.73 a stock. That is a loss of -9.5% provided to Advance Auto Parts over the last 5 years.
The stock of Advance Auto Parts is trading at closer to its 52 week high than its 52 week low which is an indication that the short term sentiment and momentum of Advance Auto Parts is positive at this point in time.
The stock of Advance Auto Parts is trading at closer to its 52 week high than its 52 week low which is an indication that the short term sentiment and momentum of Advance Auto Parts is positive at this point in time.
Advance Auto Parts (AAP) stock vs O'reilly (ORLY) stock performance over the last 5 years
The image below shows the stock price performance of Advance Auto Parts (AAP) stock vs O'reilly (ORLY) stock performance over the last 5 years. Both these firms are active in the after market car parts.
O'Reilly's Auto Parts stock has easily outperformed that of Advance Auto Parts over the last 5 years
- O'Reilly Auto Parts: 78.8%
- Advance Auto Parts: -9.5%
O'Reilly's Auto Parts stock has easily outperformed that of Advance Auto Parts over the last 5 years
Recent coverage of Advance Auto Parts
The extract below discusses the latest learning management system of Advance Auto Parts as obtained from SeekingAlpha.com
Read the full article here
- Advance Auto Parts (NYSE:AAP) reports comparable store-sales increased 10.2% vs. consensus of 7%, led by DIY Omnichannel business.
- Adjusted gross margin rate up 50 bps to 44.4% vs. consensus of 44.2%, driven by improvements in pricing actions and supply chain efficiencies as well as favorable channel mix.
- Adjusted SG&A expense rate improved 133 bps to 33.7% vs. consensus of 33.9%.
- Adjusted operating margin rate up 183 bps to 10.7% vs. consensus of 10.4%.
- During the quarter, the company repurchased 0.7M common shares for $109.6M at an average price of $153.06/share.
- Store count -251 Y/Y to 4,811.
- Due to continued volatility, the company refrains from providing any guidance.
Read the full article here
Advance Auto Parts (NYSE: AAP) latest stock valuation
So what is Advance Auto Parts (NYSE:AAP) stock worth based on the release of their latest earnings report? Based on the earnings reported our valuation model provides a target (full value) price for Advance Auto Parts at $126.90 a stock. We therefore believe that the stock is overvalued.
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $126.90 A good entry point into Advance Auto Parts' would therefore be at $114.20or below. We expect the stock of Advance Auto Parts to pull back in coming weeks and months to levels closer to our target price.
As the stock of Advance Auto Parts is trading at well above our suggested entry point into the stock we rate their stock as a sell
We usually suggest long term investors look to enter a stock at least 10% below our target (full value) price which in this case is $126.90 A good entry point into Advance Auto Parts' would therefore be at $114.20or below. We expect the stock of Advance Auto Parts to pull back in coming weeks and months to levels closer to our target price.
As the stock of Advance Auto Parts is trading at well above our suggested entry point into the stock we rate their stock as a sell
Next earnings release of Advance Auto Parts
It is expected that Advance Auto Parts will release their 4th quarter and full fiscal 2019 earnings report in mid February 2020