With robust demand for brand spanking new and used vehicles, the growing trend for vehicle customization, the introduction of advanced technologies, and a big surge in e-commerce, the auto parts industry’s outlook looks promising. Given the industry’s tailwinds, let’s discover if AutoZone (AZO), Advance Auto Parts (AAP), and Modine Manufacturing (MOD) are ideal auto stock buys. Proceed reading….
Despite prevailing macro headwinds, the auto parts industry is well-positioned to witness significant growth this yr and beyond, due to regular demand for brand spanking new and used automobiles, the rising popularity of auto customization and personalization, several technological advancements, and the introduction of e-commerce platforms.
Given the industry’s solid footing, investing in fundamentally sound auto stocks AutoZone, Inc. (AZO) and Modine Manufacturing Company (MOD) might be sensible now. Nevertheless, investors could hold Advance Auto Parts, Inc. (AAP) and wait for a greater entry point on this stock.
In keeping with the latest forecast released by Cox Automotive, the U.S. automotive industry’s solid year-over-year sales recovery continued in the third quarter of 2023, driven by pent-up demand and improved industry-wide inventory levels.
Despite higher rates of interest on new-vehicle loans and a strike by the United Auto Employees against the major domestic automakers, sales volumes in September are expected to achieve around 1.3 million, up greater than 13% from a yr ago. Also, sales volume in the third quarter is forecast to surpass 3.9 million, a rise of greater than 15% over the same period a yr earlier.
As the auto market enters the final quarter of 2023, the Cox Automotive Industry Insights team raised its full-year new-vehicle sales forecast to between 15.3 and 15.4 million units, a rise from the estimate of 15 million at the end of the first half.
The growing demand for brand spanking new and used automobiles, the continued growth in aftermarket sales, and the rising demand for electric and hybrid vehicles are key aspects propelling the auto parts industry’s growth. In keeping with a report by Market Research Future, the global auto parts market is projected to achieve $755 billion by 2026, growing at a CAGR of seven.5%.
As well as, the auto parts market’s growth prospects appear vivid, driven by the increasing trend of automotive customization and personalization, like aesthetic look and performance upgrades, and several other technological advancements, including navigation systems, advanced driver assistance systems, and infotainment systems.
The introduction of e-commerce platforms offering automotive parts and accessories is further expected to assist the industry’s profitability. The auto parts e-commerce aftermarket is predicted to achieve $183.31 billion by 2029, exhibiting a CAGR of 14.6% during the forecast period of 2023 to 2029.
With these favorable trends in mind, let’s take a have a look at the fundamentals of the three Auto Parts stocks, starting with number 3.
Stock to Hold:
Stock #3: Advance Auto Parts, Inc. (AAP)
AAP offers automotive alternative parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and lightweight and heavy-duty trucks. The corporate operates stores under the Advance Auto Parts, Autopart International, and Carquest brands and branches under the Worldpac name.
AAP updated its full-year 2023 guidance with a modest step up in net and comparable store sales growth, driven by the strengthening of its skilled business. The corporate expects full-year net sales of $11.25-$11.35 billion, up from the prior guidance of $11.20-$11.30 billion. Its comparable store sales are anticipated to be between negative 0.5% to 0.5%.
Nevertheless, the company reduced its outlook for operating income margin rate, EPS, and free money flow. This reflects additional headwinds expected in the back half of the yr driven by its ongoing commitment to maintaining competitive price targets, impacts from a shift in channel mix, and investments in its team to assist retain top talent.
AAP anticipates fiscal yr 2023 EPS of $4.50-5.10, down from the previous outlook of $6-$6.50. The corporate’s free money flow is predicted to be $150-$250 million, in comparison with the prior outlook of $200-$300 million.
AZO’s trailing-12-month gross profit margin of 43.60% is 23% higher than the 35.45% industry average. Nevertheless, the stock’s trailing-12-month EBIT margin and net income margin of 5.11% and three.08% are lower than the respective industry averages of seven.42% and 4.40%.
AAP’s net sales for the second quarter ended July 15, 2023, increased 0.8% year-over-year to $2.68 billion. Nevertheless, its gross profit declined 3.2% from the year-ago value to $1.15 billion. Its operating income was $134.37 million, up 33.4% year-over-year. The corporate’s net income decreased 40.9% from the prior yr’s quarter to $85.36 million.
As well as, the company reported earnings per common share of $1.43, a decline of 39.9% year-over-year. But its money and money equivalents stood at $277.06 million as of July 15, 2023, in comparison with $269.28 million as of December 31, 2022.
Analysts expect AAP’s revenue for the fiscal yr (ending December 2023) to extend 0.9% year-over-year to $11.26 billion. Nevertheless, the company’s EPS for the ongoing yr is predicted to say no 63.6% year-over-year to $4.75. Also, it missed the consensus EPS estimates in three of the trailing 4 quarters.
For the fiscal yr 2024, the company’s revenue and EPS are estimated to extend 2.1% and 21.6% from the prior yr to $11.49 billion and $5.77, respectively.
Shares of AAP have declined 15.5% over the past month and 52.2% over the past six months to shut the last trading session at $54.82.
AAP’s POWR Rankings reflect its mixed prospects. The stock has an overall C rating, equating to a Neutral in our proprietary rating system. The POWR Rankings are calculated by considering 118 various factors, with each factor weighted to an optimal degree.
AAP has a B grade for Quality and Value. It has a C grade for Momentum. On the other hand, the stock has an F grade for Sentiment. It’s ranked #49 out of 60 stocks in the A-rated Auto Parts industry.
Click here for the additional POWR Rankings for AAP (Stability and Growth).
Stocks to Buy:
Stock #2: AutoZone, Inc. (AZO)
AZO retails and distributes automotive alternative parts and accessories. The corporate provides various products for cars, sport utility vehicles, vans, and lightweight trucks. Its products include A/C compressors, batteries and accessories, bearings, belts and hoses, calipers, chassis, clutches, CV axles, engines, fuel pumps, fuses, ignition and lighting products, mufflers, and radiators.
Under its share repurchase program, AZO repurchased 403 thousand shares of its common stock during the fourth quarter at a median price per share of $2.502, for a complete investment of $1 billion. For fiscal yr 2023, the company repurchased 1.5 million shares of its stock for a complete investment of $3.7 billion. Share buybacks would enable AZO to generate additional shareholder value.
AZO’s trailing-12-month gross profit margin of 51.96% is 46.6% higher than the 35.45% industry average. Likewise, the stock’s trailing-12-month EBITDA margin and net income margin of twenty-two.49% and 14.48% are significantly higher than the industry averages of 11.01 and 4.40%, respectively.
For the fourth quarter that ended August 26, 2023, AZO’s net sales increased 6.4% year-over-year to $5.69 billion, and its gross profit grew 8.8% from the year-ago value to $3 billion. Its operating profit rose 10.8% year-over-year to $1.22 billion. The corporate’s income before taxes grew 7.1% from the prior-year quarter to $1.11 billion.
Moreover, the company’s net income rose 6.8% from the year-ago value to $864.84 million, and its net income per share got here in at $46.46, a rise of 14.7% year-over-year.
Analysts expect AZO’s revenue for the fiscal 2024 first quarter (ending November 2023) to extend by 5.3% year-over-year to $4.19 billion. The consensus EPS estimate of $30.96 for the current quarter reflects a 12.8% year-over-year improvement. Furthermore, the company has topped the consensus EPS estimates in all 4 trailing quarters, which is impressive.
Further, the company’s revenue and EPS for the fiscal yr (ending August 2024) are expected to grow 7.3% and 12.8% year-over-year to $18.73 billion and $149.31, respectively.
Over the past six months, AZO’s stock has surged 7.3% to shut the last trading session at $2,540.90. Also, the stock has gained 21% over the past yr.
AZO’s strong fundamentals are reflected in its POWR Rankings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
AZO has an A grade for Quality and a B for Sentiment. It’s ranked #28 out of 60 stocks in the A-rated Auto Parts industry.
To access additional POWR Rankings of AZO for Momentum, Stability, Value, and Growth, click here.
Stock #1: Modine Manufacturing Company (MOD)
MOD offers engineered heat transfer systems and heat-transfer components to be used in on- and off-highway original equipment manufacturer (OEM) vehicular applications. The corporate operates through the Climate Solutions and Performance Technologies segments.
On September 6, MOD signed a definitive agreement to sell three German-based Modine businesses positioned in Neuenkirchen, Pliezhausen, and Wackersdorf to affiliates of Regent LP. The sale of those businesses aligns with the company’s technique to focus its resources on high-margin technologies with solid growth drivers.
On August 15, MOD launched a latest electric infrared product line – the MEL Series. This high-wattage, commercial-grade electric infrared heater offers energy efficiency, fast heat-up times, and flexibility for various applications, including outdoor patios and industrial spaces. This series is UL-certified for residential outdoor and industrial use, with input voltages starting from 120V to 480V.
“The MEL Series provides our customers with a low-emissions heating product that might be utilized in a wide selection of applications. We’re excited so as to add this latest product to our growing line of electrical heating solutions. Our team is committed to offering products that support Modine’s purpose of engineering a cleaner and healthier world,” said Jon Schlemmer, Vice President and General Manager of Heating Business at MOD.
When it comes to the trailing-12-month EBIT margin, MOD’s 8.09% is 9% higher than the 7.42% industry average. Furthermore, the stock’s trailing-12-month net income margin and ROCE of seven.72% and 34% are higher than the respective industry averages of 4.40% and 11.17%.
MOD’s net sales increased 15% year-over-year to $622.40 million for the second quarter that ended June 30, 2023. Its gross profit rose 53.4% year-over-year to $127.90 million. Its operating income rose 159.8% from the year-ago value to $66.50 million. The corporate’s adjusted EBITDA was $80.40 million, a rise of 90.5% year-over-year.
As well as, net earnings attributable to MOD grew 213.3% year-over-year to $44.80 million. The corporate’s adjusted earnings per share increased 165.6% from the prior yr’s quarter to $0.85.
Analysts expect MOD’s revenue and EPS for the fiscal yr (ending March 2024) to extend 9.2% and 48.1% year-over-year to $2.51 billion and $2.89. Moreover, the company has surpassed the consensus EPS estimates in each of the trailing 4 quarters.
The stock has gained 124.1% year-to-date and 234.4% over the past yr to shut the last trading session at $45.07.
MOD’s POWR Rankings reflect its robust outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Sentiment, and Quality. It’s ranked #15 in the same industry.
Along with the POWR Rankings I’ve just highlighted, you possibly can see MOD’s rankings for Stability, Value, and Momentum here.
What To Do Next?
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AZO shares were unchanged in premarket trading Thursday. 12 months-to-date, AZO has gained 3.03%, versus a 12.64% rise in the benchmark S&P 500 index during the same period.
About the Writer: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to grow to be an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to assist retail investors understand the underlying aspects before making investment decisions.
The post AutoZone (AZO) vs. Advance Auto Parts (AAP) vs. Modine Manufacturing Company (MOD): Which Is the Best Auto Stock Buy? appeared first on StockNews.com