Is Advance Auto Parts Turning The Corner? Analyst Predicts Slow Recovery And Market Share Losses

JPMorgan analyst Christopher Horvers reiterated the Neutral rating on Advance Auto Parts Inc. AAP, with a price forecast of $41.

Yesterday, the company reported fourth-quarter adjusted earnings per share of $1.18 loss, which is in line with the analyst consensus estimate. Quarterly sales of $2 billion (down 0.9% year over year) outpaced the street view of $1.93 billion. Comparable store sales for the fourth quarter decreased 1.0%.

The analyst maintains a Neutral rating, noting Advance Auto Parts is losing market share, reversing course on pricing, and expecting a margin below 1% in 2024, much lower than its prior long-term target.

The analyst seeks more clarity due to Advance Auto Parts’ ongoing turnaround.

Horvers highlights that Advance Auto Parts anticipates modest macro improvement in the second half of the year.

Also Read: Nvidia Analyst Sees ‘Significant Upside’ For Stock With Favorable Risk/Reward

The analyst notes that Advance Auto Parts sees strength in filters, fluids, and chemicals, but continued weakness in discretionary categories, which is not expected to improve in FY25.

The slower start to first quarter was attributed to weather, tax refunds, and general softness in its core consumer.

However, management expects seasonal comparisons to ease in the coming weeks and is preparing for when the weather improves.

Horvers now models first quarter and FY25 comps at -2% and +0.6%, respectively.

Horvers highlights that the company expects to achieve a mid-40s GM and a 7% operating margin by 2027, with a strong 2025 gross margin exit rate in Q4.

The analyst models a first-quarter gross margin of 43.8% and a 2025 gross margin of 44.0%.

Price Action: AAP shares are trading higher by 1.41% to $38.25 at last check Thursday.

Read Next:

• Does Jensen Huang Check Nvidia Stock Price Daily?

Image: Shutterstock