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Analyst: Advance Auto Parts 'Best Place For Fresh Money' In Sector

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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. (NYSE: 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 (NASDAQ: 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 will soon narrow.

Broadly, Ciccarelli said the industry is benefiting from cheap gas and "generally favorable weather patterns."

The boom in new car sales 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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Dec 2017Moffett NathansonInitiates Coverage OnNeutral
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