UPDATE - Nomura Securities Upgrades Advance Auto Parts (AAP) to Neutral; Looking Better
AAP Hot Sheet
Rating Summary:2 Buy, 14 Hold, 0 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 22 | Down: 8 | New: 36
UPDATE - Nomura Securities upgrades Advance Auto Parts (NYSE: AAP) from Reduce to Neutral. PT boosted from $49 to $90.
Analyst, Aram Rubinson, said, "AAP beat Q4 expectations in a way that suggests our view on the stock has been wrong. The company delivered sales that were more in line with its peers and worked down inventory growth without impacting gross margins. We had been asserting that AAP could not bring inventory down without hurting GMs. Q4 inventories were up only +9%. Recent quarters saw increases of +15-20%. The fact that AAP brought inventory growth more in line with sales growth (+4.5%) suggests our assertion was off base. AAP comped +2.9% in the period, which was above our estimate of +2.0% and was in line with consensus. More importantly, AAP’s comps were relatively close to O' Reilly (Nasdaq: ORLY) (+3.3%), suggesting it is keeping more apace with its peers. And if the company were to see 12% EBIT margins over time, it would equate to earnings power as high as ~$8 per share. The stock is currently trading at only ~10-11x that potential, leaving room for upside. Our new EPS estimates are substantially higher at $5.87 (from $4.77) and $6.75 (from $5.00) for 2012 and 2013, respectively. We are ahead of 2012 guidance due to building in an appropriate buyback assumption."
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Analyst, Aram Rubinson, said, "AAP beat Q4 expectations in a way that suggests our view on the stock has been wrong. The company delivered sales that were more in line with its peers and worked down inventory growth without impacting gross margins. We had been asserting that AAP could not bring inventory down without hurting GMs. Q4 inventories were up only +9%. Recent quarters saw increases of +15-20%. The fact that AAP brought inventory growth more in line with sales growth (+4.5%) suggests our assertion was off base. AAP comped +2.9% in the period, which was above our estimate of +2.0% and was in line with consensus. More importantly, AAP’s comps were relatively close to O' Reilly (Nasdaq: ORLY) (+3.3%), suggesting it is keeping more apace with its peers. And if the company were to see 12% EBIT margins over time, it would equate to earnings power as high as ~$8 per share. The stock is currently trading at only ~10-11x that potential, leaving room for upside. Our new EPS estimates are substantially higher at $5.87 (from $4.77) and $6.75 (from $5.00) for 2012 and 2013, respectively. We are ahead of 2012 guidance due to building in an appropriate buyback assumption."
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