The auto aftermarket retailing sector will benefit from a slowing growth rate of new-car sales and corresponding growth in break-downs, an analyst said Thursday.
Advance Auto Parts, Inc. AAP is "the best place for fresh money" in the sector, according to RBC's Scott Ciccarelli, who said shares of O'Reilly Automotive Inc ORLY "look vulnerable."
The Roanoke, Virginia-based Advance Auto has offered solid performance since its $2 billion acquisition of General Parts International 18 months ago, while resulting cost synergies have exceeded expectations.
The company's stock price is reasonable based on its outlook, and Ciccarelli believes the company could exceed earnings expectations.
O'Reilly's stock price, however, is richly valued relative to its outlook, and Ciccarelli forecast that its profit margin wills soon narrow.
Broadly, Ciccarelli said the industry is benefiting from cheap gas and "generally favorable weather patterns."
The boom in new car sales touched off following the most recent recession caused same-store sales growth at after-market retailers to moderate. A slower-sales pace for new cars removes a negative for parts dealers, Ciccarelli said.
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