A bus drives past an Advance Auto Parts Inc. store in Phoenix, Arizona
Caitlin O'Hara/BloombergAuto stocks are on a roll early Wednesday, led by robust results from AutoNation earnings and an upgrade for Advance Auto Parts that calls the retailer stronger than it has been at any point in the past 20 years.
AutoNation (ticker: AN) was up nearly 7% to $67.35 in premarket trading, on the heels of its third-quarter earnings. The auto dealer said it earned $182.6 million, or $2.05 a share, up from $1.10 a share in the year ago period. On an adjusted basis, earnings per share was $2.38 on revenue that slipped 1% to $5.4 billion. Analysts were looking for earnings per share of $1.65 on revenue of $5.19 billion.
The company said that same-store gross profit per new vehicle was up 56% year over year, while profit per used vehicle climbed 43%. Overall comparable gross profits climbed 11%. AutoNation’s fixed costs fell nearly 2% in the quarter, and the company boosted its share repurchase plan by half a billion dollars.
AutoNation is up nearly 30% in 2020, helped by rising prices for used cars, an area of its business that is accelerating.
Elsewhere, Advance Auto Parts (AAP) was rising 2% to $156 after Raymond James analyst Matthew McClintock raised his rating to Outperform from Market Perform, establishing a $175 price target.
He writes that after four years of turnaround efforts, he’s gaining confidence that Advance Auto’s restructuring will start to bear fruit. “Our experience is that retail turnarounds tend to take much longer than short-term focused investors are willing to stick around for. Yet at this point we are willing to go on record and say that significant improvement has been made and this now is a much more fundamentally sound company than at any point in probably this century.”
In the near-term, McClintock says that trends support comparable sales rising in the third quarter and beyond, while potential new targets from management could help get investors interested in the stock again.
This is the third auto parts retailer that he’s recently upgraded, as he also bullish on O’Reilly Automotive (ORLY) and AutoZone (AZO). JPMorgan also endorsed Advance Auto earlier this month.
Texas Instruments (TXN) isn’t a traditional auto stock, but it too initially got a boost from its better-than-expected third-quarter results, in large part thanks to increased demand for semiconductor components from the automotive sector. However, the shares were effectively flat at $150.75 at recent check.
Write to Teresa Rivas at teresa.rivas@barrons.com
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October 21, 2020 at 08:23PM
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AutoNation and Advance Auto Parts Stock: Everything’s Coming Up Roses for Auto Stocks - Barron's
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