Credit Suisse Constructive On Advance Auto Parts After Q4 Beat

Advance Auto Parts, Inc. AAP reported better-than-expected fourth-quarter adjusted earnings per share Wednesday, notwithstanding a 2.2-percent drop in net sales.

The Analyst

Credit Suisse analyst Seth Sigman maintained his Outperform rating on Advanced Auto Parts shares and increased the price target from $100 to $122, suggesting roughly 10-percent upside from current levels.

The Thesis

Lower selling, general and administrative expenses and some bright spots in gross margin Q4 indicate progress, Sigman said in a Monday note. The company is moving ahead with end-to-end supply chain work while pursuing strategic product initiatives, including a partnership with Interstate, the analyst said.

Sigman said he sees improvement in underlying sales trends, with the momentum carrying into 2018. Credit Suisse is constructive on the opportunity for the company following the Q4 print, he said. 

The guidance feels appropriate — and "potentially conservative" — in light of opportunities for upside to comps, margin assumptions and buybacks, Sigman said. Advanced Auto Parts' material cost reductions seem to be ramping, the analyst said. 

Credit Suisse raised its 2018 earnings per share estimate for Advance Auto Parts from $6.03 to $6.44, with flattish comps and a 10-basis-point improvement in EBIT margin. The research firm lifted its 2019 estimate from $6.93 to $7.44 on the basis of 1-percent comps and a 60-basis-point margin expansion.

The Price Action

Advance Auto Parts shares are down about 31 percent over the past year.

At the time of writing, the shares were up 1.67 percent at $112.41. 

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