Advance Auto Parts Tumbling Today On Analysts Reaction: What's Going On?

BofA Securities analyst Elizabeth L. Suzuki issued a downgrade on Advance Auto Parts, Inc. AAP stock to Underperform from Neutral and lowered the price target of $43 from $60.

The analyst was bearish on the stock following third-quarter earnings and expected continued challenges in the medium-term.

Yesterday, Advance Auto Parts reported third-quarter FY23 sales growth of 2.9% year-on-year to $2.719 billion, beating the analyst consensus of $2.68 billion. The company reported an EPS loss of $(0.82), missing the analyst consensus of $1.45.

Advance Auto Parts lowered the FY23 EPS outlook to $1.40-$1.80 versus the $4.65 estimate (prior view: $4.50-$5.10) and revised revenue guidance to $11.250 billion-$11.300 billion versus the $11.27 billion estimate (prior view: $11.25 billion-$11.35 billion).

The company also initiated separate sale processes for Worldpac and its Canada business. 

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The analyst projected the divestiture of these two assets to be initially dilutive to net income due to dis-synergies and tax expenses. 

The analyst said the deterioration of AAP's financial performance over the past decade will likely require further investment in supply chain improvements and associate retention. 

Suzuki expects Advance Auto Parts' free cash flow to remain under pressure for at least 12 months.

The analyst estimated EPS of $1.55 (vs. $4.67 cons.) for FY23, $3.08 (vs. Street view $5.25) for FY24, and $3.83 (vs. 6.25 cons.) for FY25. 

Analysts maintaining a Neutral rating include JP Morgan Chase & Co., which cut the price target to $55 from $78, Wedbush lowered it to $60 from $80, and Goldman Sachs reduced it to $73 from $83.

AAP Price Action: Advance Auto Parts shares are down 5.89% at $52.38 on the last check Thursday. 

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Photo: Generic photo of auto parts, Shutterstock