Wedbush Analyst Downgrades Advance Auto Parts Over Margin Concerns
January 14, 2023
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It is the second-largest retailer of aftermarket auto parts and accessories in the United States, behind AutoZone. On Thursday, Wedbush analyst Seth Basham voiced concerns about Advance Auto Parts ($NYSE:AAP)’ margins. The auto parts retailer reported that it is investing further in the Pro segment in its third quarter report, but Basham views this as a warning sign due to its lower margins and higher inventory levels compared to competitors such as O’Reilly Automotive and AutoZone. The analyst noted that the company’s investments in its Pro segment have led to higher inventory levels, which could lead to margin risk. He added that the company has not been able to generate enough sales to offset the higher inventory costs and that this could be a sign of increasing margin pressure.
The analyst also noted that while the company has a solid track record of driving same-store sales, it will face increased competition from Amazon and other online retailers. While the company’s long-term outlook remains positive, investors remain cautious about its near-term margins due to its investments in the Pro segment. Going forward, investors will be closely monitoring the company’s margin performance to determine whether it can adequately offset its higher inventory costs.
Price History
Following the announcement, the stock opened at $152.9 and closed at $152.2, representing a 0.7% decrease from its prior closing price of 153.3. Basham’s note indicated that margins could be impacted by increased promotional activity, as well as higher freight and warehousing costs. He also noted that the competitive landscape in the auto parts retail market is intensifying, further exacerbating the problem. Due to this downside risk, the analyst believes that the stock could experience further downside pressure in the coming months. In response to the downgrade, Advance Auto Parts released a statement claiming that it will continue to invest in its core business, focus on long-term growth opportunities, and remain committed to delivering value to its customers.
However, investors remain uncertain about the company’s ability to manage its margins in a competitive market. It remains to be seen whether Advance Auto Parts will be able to address these concerns and maintain its competitive edge in the market. Investors should closely monitor the stock price and look for signs of improving operational performance before making any decisions. Live Quote…
About the Company
Income Snapshot
Below shows the total revenue, net income and net margin for AAP. More…
| Total Revenues | Net Income | Net Margin |
| 11.08k | 476.85 | 4.4% |
Cash Flow Snapshot
Below shows the cash from operations, investing and financing for AAP. More…
| Operations | Investing | Financing |
| 670.42 | -430.25 | -641.21 |
Balance Sheet Snapshot
Below shows the total assets, liabilities and book value per share for AAP. More…
| Total Assets | Total Liabilities | Book Value Per Share |
| 12.13k | 9.42k | 45.5 |
Key Ratios Snapshot
Some of the financial key ratios for AAP are shown below. More…
| 3Y Rev Growth | 3Y Operating Profit Growth | Operating Margin |
| 4.5% | 3.0% | 6.0% |
| FCF Margin | ROE | ROA |
| 2.1% | 15.1% | 3.4% |
VI Analysis
Investing in a company requires careful analysis of its fundamentals. This can be made simpler with the help of the VI App which provides an overall assessment of a company in terms of financial and business aspects. The VI Risk Rating is used to measure the risk level associated with investing in a company. According to the VI Risk Rating, Advance Auto Parts is a low-risk investment. This means that it is likely to perform well over the long term, providing investors with an attractive return on their investment. Although the overall rating is low, the VI App has detected one risk warning in the company’s balance sheet. To understand this warning further, investors need to register with the VI App. Overall, Advance Auto Parts is a low-risk investment according to the VI Risk Rating. However, investors should be aware of any potential risks that may be present and they should always do their own research before investing. By using the VI App, investors can gain more insight into the company’s financial and business performance, allowing them to make a more informed decision when investing. More…
VI Peers
Advance Auto Parts Inc is an American automotive aftermarket parts retailer. Headquartered in Roanoke, Virginia, Advance Auto Parts has over 5,200 stores in the United States, Puerto Rico, and the U.S. Virgin Islands. The company operates under the Advance Auto Parts, Advance Discount Auto Parts, and Auto World names. Genuine Parts Co is an American service organization engaged in the distribution of automotive and industrial replacement parts and products, operating under the NAPA Auto Parts, NAPA Home & Business Solutions, and Worldpac brands. CarParts.com Inc is an American online retailer of aftermarket car parts and accessories, headquartered in Carson, California. O’Reilly Automotive Inc is an American retailer specializing in the sale of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States.
– Genuine Parts Co ($NYSE:GPC)
Genuine Parts Co is a distributor of automotive and industrial replacement parts in the U.S., Canada, Mexico, Australasia, and Africa. It operates through the following segments: Automotive, Industrial, Electrical, and Office Products Group. The Automotive segment offers original equipment and aftermarket products for light and heavy duty vehicles. The Industrial segment supplies replacement parts for various industries, including material handling, transportation, construction, food and beverage, and others. The Electrical segment provides replacement parts for the electrical distribution industry. The Office Products Group segment comprises of office products and office furniture. Genuine Parts was founded by Erskine Henderson on May 13, 1928 and is headquartered in Atlanta, GA.
– CarParts.com Inc ($NASDAQ:PRTS)
CarParts.com Inc has a market cap of 301.17M as of 2022, a Return on Equity of 1.06%. The company is an online retailer of automotive parts and accessories. CarParts.com offers a wide range of parts for all makes and models of vehicles.
– O’Reilly Automotive Inc ($NASDAQ:ORLY)
O’Reilly Automotive Inc is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment and accessories in the United States. As of 2022, it had a market cap of 51.63B and a ROE of -159.26%. The company operates through four segments: Retail Stores, Wholesale Parts, Professional Customer and eCommerce. It offers products under the following brands: O’Reilly Auto Parts, AutoZone, Advance Auto Parts, NAPA Auto Parts and Carquest Auto Parts.
Summary
Investment analysts at Wedbush have recently downgraded their rating on Advance Auto Parts (ADV) due to concerns about their margins. The analysts believe that the company’s current margins are unsustainable and that the company needs to take steps to address the issue. This downgrade is indicative of a potentially challenging business environment for ADV, as their margins have been under pressure for some time. As such, investors should be cautious when considering investing in Advance Auto Parts and should look closely at their financial statements to assess the health of the company.
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