Morgan Stanley Initiates Coverage on Advanced Auto Parts; Notes 'Ongoing Upside'

In a note released Tuesday morning, Morgan Stanley analyst, Simeon Gutman initiated coverage on Advanced Auto Parts Inc.

with an Overweight rating and a $150 price target. Gutman acknowledged that shares of Advanced Auto Parts have already gained 55 percent since the announcement of the General parts International acquisition in October 2013, but he believes synergies for both cost and revenue are "significantly" better than current expectations. Moreover, Gutman says the combined synergies could reach $305 million and provide earnings of more than $11. In terms of margins, Gutman wrote, "We believe gross margin expansion will be among the first and most visible positive changes. AAP has an opportunity to approach its suppliers with a clean slate and significantly improve its acquisition costs." Following the note shares of Advanced Auto Parts are up ~2.5 percent.