Advance Auto Parts reported terrible earnings Tuesday morning. The stock is up anyway, and investors in the auto industry have reason to be pleased.
The results hint that things are improving for the automotive universe at a faster rate that many on Wall Street expected. That could mean gains for a few other auto companies.
Advance (ticker: AAP) earned 91 cents from $2.7 billion in sales during the first quarter of 2020. Earnings were $2.46 a share in the first quarter of 2019. Analysts were looking for about $1.60 in per share earnings.
Things were tough in the quarter. “Advance was significantly impacted by Covid-19,” said CEO Tom Greco in the company’s news release.
It looks like a big miss, but the stock is rising anyway, with a gain of about 7% in premarket trading. The market, of course, is forward looking and it appears the second quarter is shaping up to be better than expected.
“The most important data point is [quarter to date] comps which have improved significantly and are tracking about flat,” wrote Credit Suisse analyst Seth Sigman in a Tuesday research report.
Flat is, well, great. Comparable-store sales dropped more than 9% year over year in the first quarter. Sigman believes second-quarter comparable sales could be positive, much better than Wall Street currently expects.
A faster-than-expected recovery could benefit all automotive stocks, which have been badly beaten up year to date, especially ones selling into the aftermarket, like Advance.
Advance stock is down about 18% so far in 2020, worse than comparable drops of the S&P 500 and Dow Jones Industrial Average.
Auto production halted around the end of March, so car-related stocks have been hit worse than the broader market. People didn’t buy many cars, relatively speaking, in March or April; sales fell about 40% year over year over the those two months.
Auto maker stocks, including Ford Motor (F) and General Motors (GM) are down about 45% year to date on average. Parts suppliers are off about 35%.
Aftermarket stocks, including Advance’s peer O’Reilly Automotive (ORLY), as well as KAR Auction Services (KAR), Copart (CPRT), LKQ (LQK), and IAA (IAA) are down about 27% year to date on average. What’s more, Advance, LKQ and IAA trade at discounts to their historical valuation averages.
Tesla (TSLA) is the automotive outlier. Its shares are up about 90% year to date.
Write to Al Root at allen.root@dowjones.com
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May 19, 2020 at 08:16PM
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Advance Auto Parts’ Terrible Earnings Include Some Positive News - Barron's
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