On Thursday, Evercore ISI adjusted its outlook for Advance Auto Parts (NYSE: NYSE:AAP) shares, reducing the company's price target from $80.00 to $72.00 while maintaining an In Line rating. The firm pointed to the company's ongoing efforts to enhance customer service and parts availability as key strategic focuses.
Despite a slight 0.2% drop in comparable store sales and a 0.8% decline in gross margin, Evercore ISI acknowledged the positive direction of Advance Auto Parts under the leadership of CEO Shane O'Kelly, especially noting the increase in Direct-to-Installer (DIFM) traffic and comparable sales.
The report also highlighted the complexities of the transformation, referencing the company's strategic reinvestment in pricing for 8,000 stock-keeping units (SKUs) to remain competitive.
The ongoing strategic review, including the potential sale of Worldpac, is expected to provide more clarity in the coming months. Evercore ISI anticipates that cost reductions could support further investments in technology and labor.
Evercore ISI also mentioned the possibility of optimizing assets, suggesting that the proceeds from the potential Worldpac sale, estimated at $2 billion, could be used to accelerate debt repayment or be returned to shareholders.
The $72 price target is based on a 15.5 times multiple of the projected calendar year 2025 earnings per share (EPS) of $4.60, assuming a slight increase in comparable store sales and an EBIT margin of 3.8%.
In their analysis, Evercore ISI contrasted Advance Auto Parts with O'Reilly (NASDAQ:ORLY) Automotive, citing a preference for the latter due to its potential for share gains and execution, which is priced at only a 5% premium over the S&P.
This comparison reflects the firm's view on the relative market positions and performance expectations of the two companies within the automotive retail sector.
InvestingPro Insights
In light of Evercore ISI's recent evaluation of Advance Auto Parts, real-time data and insights from InvestingPro provide additional context for investors considering the stock. With a market capitalization of $3.72 billion and a high trailing P/E ratio of 140.36, the company is trading at a significant earnings multiple, which aligns with Evercore ISI's price target considerations. Moreover, the adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 125.33, reflecting the high valuation relative to earnings.
Despite the challenges faced, Advance Auto Parts has exhibited resilience in maintaining dividend payments for 19 consecutive years, a testament to its commitment to shareholder returns. The current dividend yield stands at 1.6%, with the last dividend ex-date being April 11, 2024. Additionally, the company's stock has experienced a price total return of -14.39% over the last month and -10.0% over the last week, indicating recent market pressures. However, the long-term view shows a 23.92% price total return over the past six months, suggesting some recovery potential.
For investors seeking a deeper dive into Advance Auto Parts' financial health and future prospects, InvestingPro offers a suite of InvestingPro Tips, including an expectation of net income growth this year and an RSI indicating the stock is in oversold territory. For those looking to explore these analytics further, InvestingPro has additional tips available, which can be accessed with a special offer: use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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