Goldman Upgrades Advance Auto Parts To Buy, Sees A 'Unique Opportunity'

Advance Auto Parts, Inc. AAP named Tom Greco as CEO in April. Mr. Greco comes with 30 years of experience working at PepsiCo, Inc. PEP. Goldman Sachs’ Matthew J. Fassler upgraded the rating for Advance Auto Parts from Neutral to Buy, with a price target of $181, expressing optimism regarding the new CEO’s contribution.

Mr. Greco’s experience in sales and supply chain management would help Advance Auto Parts to face various challenges and take advantage of opportunities, analyst Matthew Fassler said.

Short Term Pain To Be Followed By Unique Opportunity

Advance Auto Parts is expected to post disappointing results in the near term, even relative to the sluggish industry trends expected through 3Q. Fassler believes that the company’s margins are set to improve meaningfully in the out-years.

The appointment of a new CEO will boost the chances of bridging the company’s shortfalls and delivering improved results. Advance Auto Parts is among the few companies operating in a category that is relatively safe from the impact of ecommerce, the analyst noted.

Advance Auto Parts is likely to achieve margin expansion via distribution rationalization, improved cost efficiency and improved sourcing. Fassler expects the company’s cash flow generation to improve with better capital levels, giving rise to abundant opportunity for rewarding capital allocation over the next two years.