The Ratings Game: Advance Auto Parts stock jumps as Wall Street zeroes in on better margins, guidance

Shares of Advance Auto Parts Inc. skyrocketed 25% Tuesday after quarterly profit came in well above expectations and the company kept its full-year guidance intact, offsetting a slight sales miss.

The stock was on track for its highest close since Oct. 3 and its intraday high of $102.89 was its highest since Aug. 14. It was the best performer on the S&P 500 index SPX, -0.23%  on Tuesday.

“After stunningly poor results in both (first quarter and second quarter), we believe the company has finally started to show some progress against their long-term profit plans,” analysts at RBC Capital said in a note Tuesday.

Turnarounds are never linear and Advance Auto Parts AAP, +17.73%  would be no exception, they said, but if the company can deliver on its margin goals “we think it will be the biggest margin expansion story in Hardlines/Broadlines retail – and the stock will likely reward investors if they can execute,” they said, using a term that encompasses full-line and specialty retail stores.

The run for Advance Auto Parts also lifted shares of competitors O’Reilly Automotive Inc. ORLY, +0.74%  and AutoZone Inc. AZO, +2.11%  

Advance Auto Parts earlier Tuesday reported adjusted third-quarter earnings of $1.43 a share on sales of $2.18 billion. Analysts polled by FactSet had expected adjusted earnings of $1.21 a share on sales of $2.21 billion.

Wall Street also zeroed in on a smaller-than-expected decline in margins rather than the sales miss and the overall soft sales trends for the chain.

Margin performance was “far better than modeled, as gross profit dollars exceeded our estimate, and expense dollars tracked well below,” analysts at Goldman Sachs said in a note Tuesday. The guidance implies 2017 per-share earnings in the $4.50-$5.50 range, encompassing Goldman’s and Wall Street’s around $5 to $5.15 a share, they said.

Analysts at Oppenheimer said they left Advance Auto Part’s post-earnings conference call “still fretting” about soft sales, “but incrementally encouraged by a more upbeat tone of management toward the company’s repositioning efforts and the health of the broader environment.”

Initiatives that included material cost improvements, third-party fee reductions, and improvements in utility, maintenance and repair costs contributed to the margin beat, analysts at Wedbush said in their note.

Shares of Advance Auto Parts have lost 42% this year, contrasting with gains around 15% for the S&P 500 SPX, -0.23%   and 18% for the Dow Jones Industrial Average DJIA, -0.12%  . The underperformance is less stark on a three-month basis, with the stock off 11% compared with gains around 4.5% for the benchmark.

Filed in: Top News Tags: 

You might like:

numberFire: NFL: 10 stats to know from both conference championship matchups numberFire: NFL: 10 stats to know from both conference championship matchups
If Vikings win, historic home-field Super Bowl could require steepest ticket ever If Vikings win, historic home-field Super Bowl could require steepest ticket ever
Jeff Reeves's Strength in Numbers: Prepare for these 5 tech stocks to move big on earnings Jeff Reeves's Strength in Numbers: Prepare for these 5 tech stocks to move big on earnings
Why Apple’s new campus and Amazon’s HQ2 probably won’t be neighbors Why Apple’s new campus and Amazon’s HQ2 probably won’t be neighbors
Is gold on the verge of breaking out? Is gold on the verge of breaking out?
Anniversary of Women’s March carries new message: Power to the Polls Anniversary of Women’s March carries new message: Power to the Polls
Tesla’s roaring start to 2018 is costing short sellers $1 billion Tesla’s roaring start to 2018 is costing short sellers $1 billion
The Sniff Test: Apple didn’t say it was hiring 20,000 new workers, nor bringing back all of its overseas cash The Sniff Test: Apple didn’t say it was hiring 20,000 new workers, nor bringing back all of its overseas cash

Leave a Reply

Submit Comment
© 0178 Stock Investors News. All rights reserved. XHTML / CSS Valid.