A global semiconductor chip shortage and supply chain issues have led to significant production cuts by automakers since the pandemic, gradually fostering a surge in the prices of new and used vehicles. However, increasing demand for replacement parts and price hikes was positive for the auto parts industry last year.
Furthermore, the growing use of electronic components in automobiles, coupled with modern consumers’ infatuation with in-car infotainment technologies, should drive growth in the near term. Technological advancements and evolving consumer expectations are expected to provide significant market expansion opportunities. The global automotive aftermarket industry is expected to grow at a 3.6% CAGR to $542.10 billion by 2026.
Given this backdrop, we think it could be wise to bet on fundamentally sound auto parts stocks AutoZone, Inc. (AZO), Advance Auto Parts, Inc. (AAP), and O'Reilly Automotive, Inc. (ORLY) now. These stocks could potentially soar higher in the near term.
AutoZone, Inc. (AZO)
AZO in Memphis, Tenn., is a specialty retailer and distributor of automotive replacement parts and accessories, including new and remanufactured automotive hard parts, maintenance items, and non-automotive products for cars, sport utility vehicles, vans, and light trucks. The company sells its products through www.autozone.com and www.autozonepro.com, and sells the ALLDATA brand diagnostic and repair software through www.alldata.com. As of Nov. 20, 2021, it operated 6,066 stores in the U.S., 666 stores in Mexico, and 53 stores in Brazil.
For its fiscal 2022 third quarter, ended May 7, 2022, AZO’s net sales increased 5.9% year-over-year to $3.87 billion. The company’s gross profit came in at $2.01 billion, indicating a 4.8% year-over-year improvement. Its EPS was $29.03, up 9.6% from the year-ago period. As of May 7, 2022, the company had $263.04 million in cash and cash equivalents.
The $115 consensus EPS estimate for its fiscal 2022, ending July 31, 2022, represents a 20.8% year-over-year improvement. It surpassed the Street’s EPS estimates in each of the trailing four quarters. Analysts expect AZO’s revenue to grow by 9.8% year-over-year to $16.06 billion for the same fiscal year. The company’s EPS is expected to grow at a 9.1% rate per annum over the next five years. And over the past month, the stock has gained 4.1% in price to close yesterday’s trading session at $2035.11.
AZO’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B grade for Sentiment. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for AZO’s Growth, Value, Momentum, and Stability here.
AZO is ranked #14 of 69 stocks in the C-rated Auto Parts industry.
Advance Auto Parts, Inc. (AAP)
AAP in Roanoke, Va., is an automotive aftermarket parts provider that serves both professional installers, do-it-yourself (DIY) customers, and independently-owned operators. The company’s stores and branches offer a selection of a brand name, OEM, and private label automotive replacement parts, accessories and chemicals, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light heavy-duty trucks.
On May 23, 2022, AAP, in partnership with Clarios, a manufacturer of advanced battery technologies, introduced the first-to-market DieHard EV 12-volt battery, designed specifically for hybrid and electric vehicles. Equipped with advanced, low-voltage technology, these batteries are designed to provide superior reliability, durability, and safety for all hybrid and electric vehicles than standard AGM batteries. This should help the companies gain wider market reach in the future.
For its fiscal 2022 first quarter, ended April 23, 2022, AAP’s net sales increased 1.3% year-over-year to $3.37 billion. The company’s adjusted gross profit came in at $1.59 billion, indicating a 6.6% year-over-year improvement. Its adjusted operating income was $303.63 million, up 1.6% from the year-ago period. AAP’s adjusted EPS came in at $3.57, representing a 6.9% rise from the prior-year period. As of April 23, 2022, the company had $138.73 million in cash and cash equivalents.
Analysts expect the company’s EPS to improve 13.6% year-over-year to $13.66 for its fiscal 2022, ending Dec. 31, 2022. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The $11.36 billion consensus revenue estimate for the same fiscal year represents a 3.3% rise from the prior year. Its EPS is expected to grow 15.2% per annum over the next five years. And over the past month, the stock has lost 6% to close yesterday’s trading session at $187.66.
AAP’s POWR Ratings reflect this promising outlook. The stock has a B grade for Quality. Click here to see the additional ratings for AAP’s Value, Growth, Stability, Sentiment, and Momentum.
AAP is ranked #23 in the Auto Parts industry.
O'Reilly Automotive, Inc. (ORLY)
ORLY is a specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The Springfield, Mo., company sells new and remanufactured automotive hard parts, maintenance items, and other accessories to do-it-yourself (DIY) and professional service providers. As of Dec. 31, 2021, the company owned and operated 5,759 stores in the U.S. and 25 stores in Mexico.
ORLY’s sales for its fiscal 2022 first quarter, ended March 31, 2022, increased 6.6% year-over-year to $3.30 billion. The company’s gross profit came in at $1.71 billion, up 4.1% from the prior-year period. Its EPS increased 1.6% year-over-year to $7.17. And it had $191.55 million in cash and cash equivalents as of March 31, 2022.
The $32.97 consensus EPS estimate for its fiscal 2022, ending Dec.31, 2022, represents a 6% year-over-year improvement. It surpassed the consensus EPS estimates in three of the trailing four quarters. Analysts expect its revenue to grow 7.4% year-over-year to $14.31 billion for the same fiscal year. The company’s EPS is expected to grow at a 9.9% rate per annum over the next five years. And over the past week, it has gained 3% in price to close yesterday’s session at $624.61.
ORLY’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality. Click here to see the additional ratings for ORLY (Sentiment, Value, Momentum, Growth, and Stability).
The stock is ranked #18 in the Auto Parts industry.
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AZO shares were unchanged in premarket trading Thursday. Year-to-date, AZO has declined -2.92%, versus a -13.23% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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