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Cost Woes Dampen Auto Replacement Parts Industry's Outlook
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The Zacks Automotive-Replacements Parts industry comprises companies that engage in the production, marketing and distribution of replacement parts for the automotive aftermarket. The industry players offer replacement systems, components, equipment and parts to repair and accessorize vehicles.
Over the years, increased awareness about improving efficiency and ensuring long-term functioning of vehicles has boosted demand for auto parts that are manufactured with precision and advanced technological methods. A few of the important auto replacement parts include engine, drive axle, gearbox parts, steering, suspension and brakes.
Let’s take a look at the industry’s three major themes:
The growing demand for high-quality auto parts to comply with regulatory emission standards has created ample opportunity for auto parts suppliers.
In the near term, rising interest rates in the United States are anticipated to curb consumers’ urge to invest in new vehicles. They would rather spend on replacement parts to maintain their old ones. Further, higher disposable income in developing nations will benefit the replacement parts market.
Tariff hikes on cheap imports from China have also put brakes on competitive pricing previously enjoyed by auto parts suppliers. Also, a steep rise in container shipping charges across the Pacific has disrupted the supply chain. Suppliers’ incapability to absorb such high tariff-related costs will compel industry players to pass on the incremental price to the consumers. Further, the possibility of the imposition of new tariff on around $200 billion worth of automotive imports is a concern.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Automotive – Replacement Parts industry is an eight-stock group within the broader Zacks Auto sector. The industry currently carries a Zacks Industry Rank #227, which places it at the bottom 12% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has declined 7.6%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry’s Stocks Market Performance
Over the past year, the Zacks Automotive – Replacement Parts industry has lagged the Zacks S&P 500 composite while performed better than the broader Auto sector. The industry has declined 15.3% over this period compared with the S&P 500’s fall of 6.6% and the broader sector’s decrease of 23.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing auto stocks, the industry is currently trading at 13.3X compared with the S&P 500’s 10.4X and the sector’s 7.6X.
Over the past five years, the industry has traded as high as 16.5X, as low as 11.4X and at a median of 13.9X, as the chart below shows.
EV/ EBIDTA Ratio (TTM)
EV/ EBIDTA Ratio (TTM)
Bottom Line
Strict regulations in the automotive industry have unlocked opportunities for replacement parts suppliers. However, in addition to offering the market with technically-advanced products at competitive prices, the industry players also have to manage manufacturing and tariff-related costs while keeping a check on the supply chain. Increased auto replacement parts price and supply disruptions might impede consumers’ buying decision.
Given all these odds, the industry should focus on developing advanced products in a cost-effective way in order to improve sales and maintain market share.
Genuine Parts Company: This Atlanta, GA-based manufacturer and distributor of automotive and industrial replacement parts’ consensus EPS estimate for 2019 has remained unchanged at $6 per share over the past 60 days. The stock has gained 0.3% in the past six months.
Price and Consensus:
We are also presenting two stocks with a Zacks Rank #3 (Hold) that have solid long-term growth potential.
Dorman Products, Inc. (DORM - Free Report) : This Colmar, PA-based supplier of automotive replacement parts’ consensus EPS estimate for the current-year has remained unchanged at $4.61 per share over the past 60 days. The stock has gained 20.4% in the past six months.
Price and Consensus:
Standard Motor Products, Inc. (SMP - Free Report) : This Long Island City, NY-based replacement parts supplier’s consensus EPS estimate for the current year has remained unchanged at $3.41 over the past 60 days. This stock has rallied 4.8% in the past six months.
Price and Consensus:
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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Cost Woes Dampen Auto Replacement Parts Industry's Outlook
The Zacks Automotive-Replacements Parts industry comprises companies that engage in the production, marketing and distribution of replacement parts for the automotive aftermarket. The industry players offer replacement systems, components, equipment and parts to repair and accessorize vehicles.
Over the years, increased awareness about improving efficiency and ensuring long-term functioning of vehicles has boosted demand for auto parts that are manufactured with precision and advanced technological methods. A few of the important auto replacement parts include engine, drive axle, gearbox parts, steering, suspension and brakes.
Let’s take a look at the industry’s three major themes:
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Automotive – Replacement Parts industry is an eight-stock group within the broader Zacks Auto sector. The industry currently carries a Zacks Industry Rank #227, which places it at the bottom 12% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimate for the current year has declined 7.6%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry’s Stocks Market Performance
Over the past year, the Zacks Automotive – Replacement Parts industry has lagged the Zacks S&P 500 composite while performed better than the broader Auto sector. The industry has declined 15.3% over this period compared with the S&P 500’s fall of 6.6% and the broader sector’s decrease of 23.6%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), which is a commonly used multiple for valuing auto stocks, the industry is currently trading at 13.3X compared with the S&P 500’s 10.4X and the sector’s 7.6X.
Over the past five years, the industry has traded as high as 16.5X, as low as 11.4X and at a median of 13.9X, as the chart below shows.
EV/ EBIDTA Ratio (TTM)
EV/ EBIDTA Ratio (TTM)
Bottom Line
Strict regulations in the automotive industry have unlocked opportunities for replacement parts suppliers. However, in addition to offering the market with technically-advanced products at competitive prices, the industry players also have to manage manufacturing and tariff-related costs while keeping a check on the supply chain. Increased auto replacement parts price and supply disruptions might impede consumers’ buying decision.
Given all these odds, the industry should focus on developing advanced products in a cost-effective way in order to improve sales and maintain market share.
The only stock within the Zacks Automotive – Replacement Parts space with a favorable Zacks Rank is Genuine Parts Company (GPC - Free Report) . It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Genuine Parts Company: This Atlanta, GA-based manufacturer and distributor of automotive and industrial replacement parts’ consensus EPS estimate for 2019 has remained unchanged at $6 per share over the past 60 days. The stock has gained 0.3% in the past six months.
Price and Consensus:
We are also presenting two stocks with a Zacks Rank #3 (Hold) that have solid long-term growth potential.
Dorman Products, Inc. (DORM - Free Report) : This Colmar, PA-based supplier of automotive replacement parts’ consensus EPS estimate for the current-year has remained unchanged at $4.61 per share over the past 60 days. The stock has gained 20.4% in the past six months.
Price and Consensus:
Standard Motor Products, Inc. (SMP - Free Report) : This Long Island City, NY-based replacement parts supplier’s consensus EPS estimate for the current year has remained unchanged at $3.41 over the past 60 days. This stock has rallied 4.8% in the past six months.
Price and Consensus:
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
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