Standard Motor Products, Inc.
by Jared LevyMarch 06, 2012 | Comments : 0 Recommended this article: (0)
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SMP has been on the Zack’s radar for some time now and recently moved back into the Zacks Rank 1 spot. Back in early November with the stock around $18, we noted the parts company as a good value play with a forward price to earnings multiple of 12.8 and a moderate dividend yield of 1.5%. It was also cited for its momentum and growth about 40 days later.
SMP earned recognition through a string of earnings beats and stable growth after the Great Recession of 2008 and automotive bailouts. SMP proved itself to not only be a survivor, but a thriving company with room to grow.
Standard Motor is a small cap company that makes replacement parts for the automotive aftermarket industry. It has 2 major segments, Engine Management, which manufactures a full line of engine management related products, and Temperature Control, which makes replacement parts for car air conditioning and heating systems.
They distribute parts under our own brand names, such as Standard, BWD, Hayden and Four Seasons, and through private labels around the world.
Last quarter the company reported Earnings per share of 59 cents compared with the consensus of 48 cents. Earnings were just 43 cents a year ago. This strength came predominantly via the Engine Management Segment.
Sales rose 3.8% to $236.2 million from $227.5 million in the third quarter of 2010. The Engine Management segment led the quarter, with sales rising 7.6%.
Back on November 1, Standard beat Zacks consensus estimates by 23% and surprised analysts for the 6th quarter in a row. They will be releasing Q4 results later today and expectations are for SMP to earn 16 cents a share. Their earnings date was pushed back a bit from its original release due late last month.
Standard Motor Products' profit has risen year over year by an average of 37.6% over the past five quarters. Revenue has now gone up for three straight quarters and analysts are looking for growth to exceed 11% in the coming year (FY2012).
Given the strength in sales and pricing that we have been seeing across the automotive industry, it would be logical that Standard Motor will reap those benefits. We also saw strength in the parts companies like Auto Zone and O’Reilly Auto Parts.
After the Report
Normally we wouldn’t write about a stock reporting that day, but with SMP, I believe there are three ways a prospective investor can look at the situation.
1. If the report is good or in-line with estimates and guidance for the future is in-line or better that expectations, you may see a pullback in the stock, which would allow for a more advantageous entry.
2.If the report blows away estimates and forward guidance is at the top of the range or better shares may move higher. Even with a move higher, the value will remain and the stock may gain momentum in the days and weeks following the report.
3.If the report is just plain lousy and they miss on all levels, then perhaps it may be time to reevaluate this position and look for another stock.
The possibility of a completely devastating report that misses estimates sharply is low; but remembers that weather has been mild this winter (their Temperature Control segment was weak last quarter) and economic growth is still spotty and slow.
Regardless, SMP represents a stock that could still have some serious value in a market that remains cautiously bullish with a P/E that is below the market historical average of 15 and a stable recent history of earnings growth.
Shares are above the 50 and 200 day moving averages, which you can look to for support on a move lower.
Jared A Levy is the Momentum Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Whisper Trader Service.
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