Advance Auto Parts' Turnaround Is Starting; JPMorgan Adds To Focus List

JPMorgan’s Christopher Horvers believes Advance Auto Parts, Inc. AAP represents “the best turnaround story in one of the best sectors in retail.”

Horvers maintains an Overweight rating on the company, while raising the price target from $169 to $196 and adding the company to JPMorgan’s focus list.

The Turnaround Is Starting

The company’s new CEO, Tom Greco, is in the process putting together a “culture-changing” management team, with improved customer focus and execution as its top priorities.

The analyst believes 2017 will largely be a year when Advance Auto Parts reverses its bad decisions, while “early supply chain/technology initiatives take shape.”

“In addition, management will change/simplify the metrics employees are measured on with strong ties to compensation,” Horvers mentioned.

Positive Expectations

Also, a “normal” winter, following the hot summer of 2016, is likely to drive further improvement in same store sales, given the company’s high exposure to northern U.S. and the sensitivity of sales trends to extreme weather changes.

Furthermore, management’s 500 bps margin opportunity supports the analyst’s view regarding Advanced Auto Parts’ profitability potential, while earnings for 2017 are expected to have been mostly de-risked.

“3Q’s comp performance shows early progress in turning the tides of share loss as bad decisions are reversed,” Horvers stated.

The EPS estimates for FY 2016, 2017 and 2018 have been raised.

At last check, Advance Auto Parts shares were up 0.53 percent at $171.76.