Morgan Stanley: Advance Auto Parts Inc. To See Gains From Acquisition

Advance Auto Parts, Inc.

will see widening margins and growing same-store sales as gains from its $2 billion acquisition of a competitor earlier this year kick in, an analyst said Monday. Morgan Stanley's Simeon Gutman raised his price target on the parts retailer 13 percent to $170 a share and predicted that Advance Auto Parts will hit its goal of wringing $160 million in cost savings from its combination with General Parts International Inc. Moreover, same-store sales will start to gain from the addition of about 1,700 new outlets acquired through the acquisition, completed in January. The Richmond, Va., company currently owns more than 5,000 stores and serves about 1,400 independently owned Carquest branded outlets. "We see earnings upside for the next two years," Gutman said in a research note, although he added that "the heavy lifting" in integrating the two entities is just beginning. That includes tweaking its product line and distribution chain, integrating field organizations and continuing to "rationalize" its store base. "This is the longest stage" of merging the two organizations, and will last through 2015, Gutman said. Sound planning and a stable backdrop within the industry should limit the risk of missteps, according to Gutman, who maintained an Over Weight rating on the retailer.