4 Auto Parts Suppliers That Investors Should Keep an Eye On
September 15, 2020
The coronavirus pandemic has been changing transportation behavior. With social distancing becoming the new normal, people are trying their best to avoid public transportation. Ride sharing options are not being considered safe by many. Private transportation is the need of the hour. Also, amid economic slowdown concerns, consumers are getting more inclined toward used vehicles rather than splurging on new cars. As such, sales of used vehicles have held up better than new cars. Also, more and more individuals who had earlier thought of upgrading to newer models are instead replacing the worn out parts of their existing vehicles for the time being. Either way, demand for auto parts is rising. As it is, the auto parts market is less susceptible to economic ups and downs.
Meanwhile, the average age of cars is also increasing amid coronavirus-led fewer new vehicle sales and technological advancements, which in turn are increasing the longevity of vehicles. These factors are also driving the demand for auto parts. Per the latest study from IHS Markit, the current combined average age of vehicles has hit a record of 11.9 years. The aging vehicles are a boon to auto parts, replacement and repair companies. In a bid to ensure long-term functioning of the aging vehicle population, customers are making investments to replace faulty vehicle parts and components. Also, amid growing concerns of economic slowdown, customers are expected to opt for repairing old vehicles rather than splurging on new vehicles that are highly priced.
Meanwhile, a shift toward electric and self-driving vehicles has made it necessary for the industry players to reorient their business model. The auto industry is witnessing increasing demand for hybrid electric cars, which are eventually driving demand for technologically superior auto parts and specific tools. Increase in the number of new, complicated and high-tech vehicles has compelled consumers to opt for more professional assistance instead of opting for DIY (“Do It Yourself”). Widespread usage of technology and rapid digitization are resulting in fundamental restructuring of the automotive market and auto parts suppliers need to develop a detailed roadmap to make the most out of the opportunities in a changing market scenario.
Considering the above-mentioned factors, the demand for auto parts and replacement and repair services is on the rise. We believe there are plenty of opportunities going forward. We have highlighted four stocks that should be on your watchlist to fetch solid returns.
O’Reilly Automotive ORLY: This specialty retailer of automotive aftermarket parts has been generating record revenues for 27 consecutive years on the back of stable growth in the auto parts market and expansion of store base. To help serve customers effectively amid the coronavirus mayhem, it is undertaking several initiatives like curbside pickup for Buy Online and Pick Up In-Store orders, et al. The company currently carries a Zacks Rank #2 (Buy) and has an expected EPS growth rate of 14.6% for the next three-five years. The Zacks Consensus Estimate for earnings and sales for the current year suggests a year-over-year improvement of 20.9% and 9.9%, respectively.
Advance Auto Parts AAP: One of the leading providers of automotive parts, accessories and maintenance products, Advance Auto continues to expand and optimize footprint by opening new stores, widening online presence and strategic collaborations. In addition to driving growth across professional business, the firm continues to make progress on the DIY omnichannel e-commerce platform. The company presently carries a Zacks Rank #1 (Strong Buy) and has an expected EPS growth rate of 10.8% for the next three-five years. The Zacks Consensus Estimate for fiscal 2021 earnings and sales suggests a year-over-year improvement of 12.8% and 1.8%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.
LKQ Corporation LKQ: LKQ is one of the leading providers of replacement parts, components and systems that are required to repair as well as maintain vehicles. LKQ’s strategic acquisitions and divestments have aided it in streamlining its portfolio and boosting long-term prospects. Strong financials, healthy free cash flow generation and cost-containment efforts bode well for the company’s earnings prospects. LKQ currently carries a Zacks Rank #3 (Hold) and has an impressive earnings surprise history, having topped estimates in each of the trailing four quarters. The Zacks Consensus Estimate for fiscal 2021 earnings and sales suggests a year-over-year improvement of 16.8% and 6.3%, respectively.
Genuine Parts Company GPC: Genuine Parts’ strategic acquisitions to improve product offerings and expand geographical footprint are commendable. Genuine Parts’ acquisition of PartsPoint, Alliance Automotive Group and Inenco will bolster the company’s growth. Ramp up of digital initiatives including buy-online, pickup-in-store, curbside pickup and expanded ship-to-home capabilities are aiding this Zacks Rank #3 firm to generate sales amid coronavirus-led lockdown. Investment in Sparesbox, which is Australia’s leading online auto parts and accessories business, is likely to bolster the firm’s digital sales capabilities in Australasia. The Zacks Consensus Estimate for fiscal 2021 earnings and sales suggests a year-over-year improvement of 9.5% and 4.5%, respectively.
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OReilly Automotive, Inc. (ORLY): Free Stock Analysis Report
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