Raymond James Reiterates Outperform Rating on LKQ Corp. (LKQ)

Raymond James analyst Samuel Darkatsh reiterated an Outperform rating and $40.00 price target on LKQ Corp. (NASDAQ: LKQ).

The analyst comments "This morning, LKQ announced an agreement to sell its Self Service segment for $410 million to Pacific Avenue Capital Partners. The transaction is expected to close in 4Q25. Our key takeaways, in no particular order, below: ● The $410 million sale price represents 7.6x Self Service’s TTM EBITDA of ~$54 million (and roughly 2x sales), and was said to be the culmination of a competitive auction process. The sale of Self Service is no surprise given that LKQ has communicated (at least informally) the potential sale of Self Service and other non-core segments since its September 2024 Investor Day, and the current activist involvement has brought portfolio review into focus (during the 2Q25 print, management noted portfolio review was becoming a “heightened priority”). ● Assuming ~$300 million in after-tax proceeds (RJ guess), we estimate the transaction to be dilutive by ~($0.06), or by ~2% to our current 2026 adjusted EPS of $3.50. ● In its release, management stated it will “continue to evaluate opportunities” to advance its strategic objectives - language that to us, along with the sale of Self Service, implies additional portfolio review action on-the-come (presumably including an ultimate sale of Specialty). ● That Self Service was sold prior to a prospective sale of Specialty is also not surprising as it was likely the easier asset to be sold due to both its smaller size and expected multiple. To wit, Self Service’s TTM EBITDA of ~$50M keeps a greater number of financial sponsors in play relative to Specialty’s TTM EBITDA of ~$100M, which would be above/at the high-end of many financial sponsors’ size parameters. Further, we believe LKQ’s internal target for a sale of Specialty is ~10x EBITDA, implying a sale price of ~$1B and a seeming equity check of ~$500M for any financial sponsor assuming 50/50 debt equity (we see a strategic buyer of Specialty as unlikely, in part due to channel conflict among potential strategic buyers). ● Proceeds from the sale of Self Service will be used to pay down debt. We imagine that proceeds from any incremental portfolio actions (i.e. a sale of Specialty) will be put toward share repurchase, especially considering ~$1.6B remains on LKQ’s share repurchase authorization. That said, recent investor feedback includes frustration that portfolio review actions have been slow to develop to-date, which could have enabled LKQ to be repurchasing shares at a valuation currently well below its long-term average."

For an analyst ratings summary and ratings history on LKQ Corp. click here. For more ratings news on LKQ Corp. click here.

Shares of LKQ Corp. closed at $31.70 yesterday.

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