RALEIGH, N.C. - Advance Auto Parts , Inc. (NYSE: NYSE:AAP) has struck a definitive agreement to sell its wholesale distribution business, Worldpac, Inc., to Carlyle (NASDAQ: CG) for $1.5 billion in cash. The transaction, anticipated to finalize before the year's end, is part of Advance's strategy to streamline its enterprise structure and concentrate on its core blended box business.
The divestiture is expected to yield Advance approximately $1.2 billion in net proceeds after taxes and fees. These funds are slated to bolster the company's balance sheet and facilitate investment into its business operations. Shane O'Kelly, CEO of Advance, expressed gratitude to the over 5,000 Worldpac team members for their commitment over the past decade and highlighted the deal's role in providing financial flexibility and enhancing productivity for future growth.
Worldpac, which reported roughly $2.1 billion in revenue and around $100 million in EBITDA in the twelve months leading up to the second quarter of 2024, will now operate as an independent entity with Carlyle's backing. Carlyle's representatives Wes Bieligk and Katherine Barasch noted the firm's successful history in industrial carve-outs and their eagerness to collaborate with Worldpac.
Centerview Partners and Hogan Lovells US, LLP, are advising Advance on the transaction, while Carlyle has engaged BofA Securities, BMO Capital Markets, and Latham & Watkins for financial and legal counsel, respectively.
Advance Auto Parts, a major automotive aftermarket parts provider, operates 4,776 stores and 321 Worldpac branches across North America, including additional locations in Canada, Puerto Rico, and the U.S. Virgin Islands. It also supports 1,138 independently owned Carquest stores.
Carlyle, a global investment firm with $435 billion of assets under management as of June 30, 2024, focuses on private capital deployment and operates through three segments: Global Private Equity, Global Credit, and Global Investment Solutions.
The sale of Worldpac is a forward-looking statement, and as with all such statements, it is subject to risks and uncertainties that could cause actual outcomes to differ materially. The information provided is based on a press release statement.
In other recent news, Advance Auto Parts has seen a flurry of analyst activity following its first-quarter earnings report. Mizuho Securities lowered the company's share target to $64.00 and revised down its full-year 2024 earnings per share (EPS) estimate to $3.40. Projections for fiscal years 2025 and 2026 were also reduced, reflecting a more conservative valuation approach due to the lower-than-expected quarterly performance.
Evercore ISI also reduced the price target for Advance Auto Parts from $80.00 to $72.00, citing the company's ongoing strategic rebuild and efforts to enhance customer service. The firm anticipates that cost reductions could support further investments in technology and labor, and suggested the potential sale of Worldpac could accelerate debt repayment or be returned to shareholders.
RBC Capital maintained a "Sector Perform" rating on Advance Auto Parts, but lowered the stock's price target from $68.00 to $65.00 due to ongoing challenges and a subdued outlook for second-quarter margins. The firm's comparable sales and EPS estimates for fiscal years 2024 and 2025 were adjusted, reflecting the persistent weaknesses in the do-it-yourself (DIY) market segment.
Citi reiterated its Neutral rating on Advance Auto Parts with a consistent price target of $70.00. The firm highlighted the anticipated Worldpac sale as a crucial factor for investors, along with the remaining company's growth and profitability. Lastly, DA Davidson maintained a Neutral rating and a $69.00 price target for Advance Auto Parts, acknowledging the potential in the company's ongoing strategy to narrow the sales productivity and margin gap with industry leaders.
InvestingPro Insights
As Advance Auto Parts, Inc. (NYSE: AAP) moves forward with the strategic sale of Worldpac, Inc., its current financial health and market performance become crucial for investors to watch. According to InvestingPro data, Advance Auto Parts has a market capitalization of approximately $3.69 billion. Despite a modest revenue growth of 0.7% in the last twelve months as of Q1 2024, the company is trading at a high earnings multiple, with a P/E ratio of 171.06. This suggests that investors are paying a premium for earnings, which may reflect expectations for future growth or a premium for the company's assets and market position.
InvestingPro Tips indicate that while analysts predict profitability for the year, there have been eight downward earnings revisions for the upcoming period. This could signal analysts' concerns about potential headwinds or a reassessment of the company's growth prospects. Nonetheless, Advance Auto Parts has demonstrated its commitment to shareholders by maintaining dividend payments for 19 consecutive years, even as the latest dividend growth has seen a significant decline of 83.33%. The current dividend yield stands at 1.61%, which may continue to attract income-focused investors.
With the divestiture of Worldpac potentially freeing up capital for Advance Auto Parts to invest in its core operations, the company's financial agility and strategic focus may be well-received by the market. For investors seeking a more in-depth analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/AAP, providing further insights into Advance Auto Parts' financial metrics and market performance.
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