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Auto Retail & Wholesale Parts Industry Near-Term Ride Smooth

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The Zacks Automotive - Retail And Wholesale - Parts industry executes several functions. These include manufacturing, retailing, distribution, and installation of vehicle parts, equipment and accessories. Consumers have two options – either they can opt for repairing their vehicles on their own (the ‘do-it-yourself’ or ‘DIY’ segment) or they can take the assistance of a professional repair facility (the ‘do-it-for me’ or ‘DIFM’ segment).

Important companies belonging to this industry include Advance Auto Parts, Inc. (AAP - Free Report) , CarMax, Inc. (KMX - Free Report) , AutoZone, Inc. (AZO - Free Report) and O’Reilly Automotive, Inc. (ORLY - Free Report) .

Let’s take a look at the industry’s three major themes:

•    Increase in the number of new, complicated and high-tech vehicles has compelled consumers to opt for more professional assistance instead of opting for DIY.

•    Presently, the Auto Retail & Wholesale Parts industry enjoys some advantages. Higher per capita disposable income and corporate profit are increasing demand for the industry’s products and services. In addition to that, favorable macroeconomic conditions and rising demand for complex-technology embedded cars have given a boost to this industry.

•    The shift to autonomous and electric vehicles may create opportunities for the industry. However, there are some temporary issues that need to be addressed.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Automotive - Retail And Wholesale - Parts industry is a five-stock group within the broader Zacks Auto sector. The industry currently carries a Zacks Industry Rank #94, which places it in the top 37% 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 strong 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 top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Over the past year, the industry’s earnings estimate for the current year has gone up 4.9%.

Before we present a few Automotive - Retail And Wholesale - Parts 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 Outperforms Both Sector and S&P 500

Over the past year, the Automotive - Retail And Wholesale - Parts industry has outperformed its own sector as well as the Zacks S&P 500 composite.

Over this period, the industry has increased 15.3%, while the sector and Zacks S&P 500 composite index rose 6.5% and 1%, respectively.

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 22.16X compared with the S&P 500’s 11.29X. It is also above the sector’s trailing-12-month EV/EBITDA of 9.21X.

Over the past five years, the industry has traded as high as 22.51X, as low as 15.23X and at the median of 19.89X, as the chart below shows.

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio


 

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio


Bottom Line

Regular model launches and shifting consumers’ preference have led to rising demand for auto parts. Higher demand has brightened revenue growth prospects of the industry. However, uncertainty pertaining to tariffs is a headwind.

Currently, AutoZone, which belongs to this industry, carries a Zacks Rank #2 (Buy), while O’Reilly Automotive has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AutoZone: The Zacks Consensus Estimate for current-year earnings of this company has moved 0.05% north over the past 30 days.

Price and Consensus: AZO


O’Reilly Automotive: The Zacks Consensus Estimate for current-year earnings of this company has increased 0.4% over the past 30 days.

Price and Consensus: ORLY


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