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Bear of the Day: Advance Auto Parts (AAP)

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Advance Auto Parts (AAP - Free Report) missed its most recent quarter and as a results estimates are coming down.  Earnings estimates are the main driver of the Zacks Rank, so it is not a big suprise to see AAP at the lowest of Zacks Ranks and today it is the Bear of the Day.

Description

Advance Auto Parts, Inc., a leading automotive aftermarket parts provider in North America, serves both the professional installer and do-it-yourself customers. Advance Auto Parts stores and branches offer a broad selection of brand name, original equipment manufacturer (OEM) and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. Advance Auto Parts have grown significantly as a result of comparable store sales growth, new store openings and strategic acquisitions. The acquisition allowed us to expand our geographic presence, Professional capabilities and overall scale to better serve customers.

Earnings History

The fact is that AAP has a good earnings history.  The only problem is that the company missed the most recent report.  It was a big miss of 22 cents which translated into a negative earnings surprise of 9.9%.  The prior three reports were all beats of the Zacks Consensus Estimate.

Earnings Estimates

With the miss, estimates came down.  The current quarter dropped by one cent and the next quarter fell by two cents.

The Zacks Rank is focused more on the annual numbers and that is where we really see the damage.  The Zacks Consensus Estimate fell from $8.21 to $7.95.

The 2020 number fell even further, dropping from $9.50 to $9.00 over the last 60 days.

Valuation

I see a decent valuation even as the stoc has recovered from recent lows.  A 20x forward earnings multiple is just a little above the broader market multiple, but the 3x price to book multiple will have value investors looking a little deeper.  Sales are flat on a year over year basis, but still command a 1.2x price to sales multiple.  Marings are firm, but inching higher over the last three quarters so if that continues things will get better for AAP.

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