LKQ Corporation May See Its Profits Reduced Due To Brexit

The currency headwinds from Brexit could lower the profits of LKQ Corporation LKQ by 2-3 percent annually, according to a note from Baird.

LKQ, a distributor of vehicle aftermarket parts, generates about 15 percent of pro forma revenue in the UK and approximately 33 percent in Europe (including the UK).

"We believe LKQ guidance is based on a $1.45/£1 and $1.10/€1. Currently, the $/£ rate is closer to $1.37 and €/$ is closer to $1.11. Also, based on our notes, we believe LKQ purchases roughly half of its UK inventory in GBP," analyst Craig Kennison wrote in a note.

With six months to go in 2016 and assuming exchange rates near current levels, the analyst said the event could cut his $1.79 2016 EPS estimate by $0.02-$0.03 on a preliminary basis. Based on similar assumptions for 2017, the Brexit vote could reduce the analyst's $2.09 2017 EPS estimate by $0.03-$0.06.

However, Kennison has an Outperform rating and $36 price target on the stock, saying that the company is benefiting from a secular trend favoring alternative-to-OEM parts.

At time of writing, shares of LKQ fell 5.12 percent to $29.45.