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As Car Sales Pick Up, So Does MPAA
For the past several months, US auto sales have shown consistent growth. The sequential growth has small, but the year over year growth was impressive. There was a big drop off in September as new models hit the showroom floors, but as we rolled into the November 1 sales numbers, the growth returned.
This page from the Wall Street Journal breaks down auto sales in a fairly high level of detail. Its interesting stuff no doubt, but the overwhelming idea that you should get from scanning that page is that people are buying new cars.
Motorcar Parts of America makes and distributes aftermarket automobile parts. They focus on brakes, wheels, alternators, starters, and wheel hub assembly products for import and domestic cars, light trucks, heavy duty, agricultural, and industrial applications. Motorcar Parts of America was founded in 1968 and is headquartered in Torrance, California.
Beat and Re-Fi?
You probably have heard of beats and raises, but how about beat and refinances? Well that just happened for MPAA, as they recently beat estimates and refinance a $95M term loan which should dramatically reduce interest expense charges. The decrease in that line item in the income statement should send more cash flowing through to net income, and thus higher earnings.
The company reported earnings of $0.36 on November 12, and that was $0.09 ahead of the Zacks Consensus Estimate for a 33% positive earnings surprise. It was on this report that the company announced the re-fi and investors sent the stock soaring 31.8% in the session following the release.
At least one analyst noted that the re-fi would end up increasing earnings estimates by $0.15-$0.20. When The consensus was looking for $1.00 this year and $1.31 next year, a $0.15 bump for each year can end of driving the stock higher for some time to come.
MPAA Sees Estimates Moving Higher
As noted above, the trend for earnings estimates for MPAA is one that makes aggressive growth investors salivate. Estimates stood at $0.58 for 2013 back in May of this year, but then jumped to $1.00 in June following an earnings beat previous to the one that contained the re-fi. The Zacks Consensus Estimate drifted higher to $1.11 by October and is now at $1.22.
The Zacks Consensus Estimate for 2014 is also seeing big, positive moves. Analysts had their number awfully low back in May, with the consensus at $0.59 which suggested a mere penny of year over year earnings growth. They have since stepped on the gas with the Zacks Consensus Estimate jumping to $1.13 in June and $1.31 in September. The current Zacks Consensus Estimate for 2014 is $1.46. The implied earnings growth rate is nearly 20%.
MPAA has a very solid valuation picture. The forward PE of 14.4x is still well below the 18x industry average. the price to book multiple of 2.5x is just below the 2.9x industry average and the price to sales multiple is in line with the average. As I look to the margin analysis, I see that MPAA has a 9.4% net margin (which is likely to increase given the re-fi) compared to a 4.4% industry average. This means that at some point, the leverage they have will make the company attractive to other bigger competitors in the space.
The price and consensus chart is a great tool developed by Zacks. It shows how the stock has acted as the Zacks Consensus Estimate moves over time. The red line in the chart below show the struggle the company had during 2012. More recently, we see the stock starting to pick up as 2014 estimates are released. Stocks tend to follow earnings estimates, and the clear trend here is for higher estimates and that should lead to a higher stock price down the road.
I am long MPAA in my trading account.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
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