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LKQ Acquired Pittsburgh Glass Works for $635 Million

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Price movement of LKQ

LKQ (LKQ) rose by 6.6% to close at $30.03 per share at the end of the first week of March 2016. The price movement on a weekly, monthly, and year-to-date (or YTD) basis is 6.6%, 13.1%, and 1.4%, respectively.

Technically, LKQ is trading 13.9% above its 20-day moving average, 11.1% above its 50-day moving average, and 3.5% above its 200-day moving average.

The Vanguard Mid-Cap ETF (VO) invests 0.26% of its holdings in LKQ. The ETF tracks the CRSP US Mid-Cap Index, a diversified index of mid-cap US companies. The YTD price movement of VO was -3.5% as of March 3, 2016.

The market caps of LKQ’s competitors are as follows:

  • O’Reilly Automotive (ORLY): $25.8 billion
  • Genuine Parts Company (GPC): $14.0 billion
  • Copart (CPRT): $4.4 billion
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LKQ acquires Pittsburgh Glass Works

LKQ has signed a definitive agreement to acquire Pittsburgh Glass Works from private equity company Kohlberg & Company and PPG Industries (PPG) for an enterprise value of $635 million. This transaction will be completed in the second quarter of 2016, and is subject to customary closing conditions and necessary regulatory approvals.

After the announcement of the Pittsburgh Glass Works acquisition, Moody’s Investors Service downgraded LKQ’s rating outlook to negative from stable and affirmed all debt ratings with a corporate family rating of Ba1, a senior unsecured rating of Ba2, and a speculative grade liquidity rating of SGL-2.

On March 15, 2016, LKQ will hold an Investor’s Day in New York City with presentations from Robert Wagman, president and CEO, and from other members of executive management.

On March 8, 2016, LKQ’s senior management will be presenting at the Raymond James 37th Annual Institutional Investors Conference in Orlando.

Performance of LKQ in recent 4Q15 and 2015

LKQ reported fiscal 4Q15 revenue of $1.7 billion, a rise of 3.8% from revenue of $1.7 billion in fiscal 4Q14. In fiscal 4Q15, revenues from its North America, Europe, specialty, and parts and services segments rose by 7.9%, 4.6%, 16.1%, and 8.0%, respectively, from fiscal 4Q14.

Its net income and EPS (earnings per share) rose to $95.1 million and $0.31, respectively, in fiscal 4Q15 compared with $80.5 million and $0.26, respectively, in fiscal 4Q14.

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Fiscal 2015 results

In fiscal 2015, LKQ reported revenue of $7.2 billion, a rise of 6.7% YoY (year-over-year). It reported restructuring and acquisition-related expenses of $19.5 million in fiscal 2015 compared with $14.8 million in fiscal 2014.

Its net income and EPS rose to $423.2 million and $1.38, respectively, in fiscal 2015 compared with $381.5 million and $1.25, respectively, in fiscal 2014.

Meanwhile, its cash and cash equivalents fell by 23.7%, and its inventories rose by 8.6% in fiscal 2015. In fiscal 2015, its current ratio rose to 3.1x, and its long-term debt-to-equity ratio fell to 0.49x compared with 3.0x and 0.66x, respectively, in fiscal 2014.

The price-to-earnings and price-to-book value ratios of LKQ are 21.8x and 3.0x, respectively, as of March 4, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • organic revenue growth for parts and services in the range of 6%–8%
  • adjusted net income in the range of $490 million–$520 million
  • adjusted EPS in the range of $1.59–$1.69
  • cash flow operations in the range of $520 million–$550 million
  • capital expenditures in the range of $170 million–$180 million
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