Auto Retail & Wholesale Parts Industry Prospects Encouraging
Zacks Investment Research | Sep 09, 2019 10:48PM ET
The Zacks Zacks Industry Rank , which is basically the average of the Zacks Rank of all the member stocks, indicates strong near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate.
Before we present a few Auto Retail & Wholesale Parts stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Auto Retail & Wholesale Parts industry has outperformed the Auto, Tires and Truck sector as well as the Zacks S&P 500 composite over the past year.
The industry has moved up 17.2% over this period compared with the S&P 500’s rise of 2.4%. In contrast, the broader sector has declined 10.2%.
One-Year Price Performance
Industry’s Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of non-cash expenses.
On the basis of trailing 12-month enterprise value-to EBITDA (EV/EBITDA), the industry is currently trading at 22.83X compared with the S&P 500’s 11.10X and the sector’s trailing-12-month EV/EBITDA of 9.48X.
Over the past five years, the industry has traded as high as 23.23X, as low as 15.23X and at a median of 20.23X, as the chart below shows.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
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Bottom Line
A robust economy and conducive labor market conditions are favorable factors for the industry. While the economy is on track now with increasing consumer disposable income, wage growth and healthy employment levels, the risk to economic expansion is mounting because of the rising tariff war between the United States and China.
Regular model launches and shifting consumers’ preference have increased demand for more sophisticated auto parts. Higher demand has brightened revenue growth prospects of the industry.
The tech-savvy millennial generation is the chief driver of sustainable and convenient mobility solutions. Auto companies have to rethink their business model and focus their attention on the user. The fast and widespread reorganization of the automotive sector is likely to have far-reaching impacts on the industry.
We are presenting one stock with a Zacks Rank #2 (Buy) that is well positioned to grow. There are also a few stocks with a Zacks Rank #3 (Hold) that investors may currently retain in their portfolio. You can see .
U.S. Auto Parts Network, Inc. (PRTS):
California-based U.S. Auto Parts Network is one of the leading online providers of automotive aftermarket parts, including body parts, engine parts, performance parts and accessories. The company holds a Zacks Rank #2 and has an expected earnings growth rate of 71.43% for 2020.
Price and Consensus: PTRS
AutoZone
AutoZone is one of the nation’s leading specialty retailers and distributor of automotive replacement parts and accessories in the United States. The Zacks Rank #3 firm expects its earnings to grow 24.18% year over year in 2019.
Price and Consensus: AZO
O’Reilly Automotive
O'Reilly is one of the leading specialty retailers of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. The Zacks Rank #3 firm expects its earnings to grow 8.94% year over year in 2019.
Price and Consensus: ORLY
Advance Auto Parts
Advance Auto Parts operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts (excluding tires), accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles, light and heavy-duty trucks. The Zacks Rank #3 company has an expected earnings growth of 11.92% for 2019.
Price and Consensus: AAP
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