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Susquehanna Rated LKQ Corporation as ‘Positive’

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Price movement

LKQ Corporation (LKQ) has a market cap of $11.0 billion. It fell by 0.47% to close at $35.69 per share on August 26, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 0.06%, 6.2%, and 20.5%, respectively, on the same day. LKQ is trading 1.7% above its 20-day moving average, 6.2% above its 50-day moving average, and 15.9% below its 200-day moving average.

LKQ is trading 1.7% above its 20-day moving average, 6.2% above its 50-day moving average, and 15.9% below its 200-day moving average.

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Related ETF and peers

The Vanguard Mid-Cap ETF (VO) invests 0.28% of its holdings in LKQ. The ETF tracks the CRSP US Mid-Cap Index, a diversified index of midcap US companies. The YTD price movement of VO was 8.4% on August 26.

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

  • O’Reilly Automotive (ORLY): $27.0 billion
  • Genuine Parts (GPC): $15.5 billion
  • Copart (CPRT): $5.7 billion

LKQ’s rating and performance in 2Q16

Susquehanna has initiated the coverage of LKQ Corporation with a “positive” rating and set the stock price target at $42.0 per share.

LKQ reported 2Q16 revenue of $2.5 billion, a rise of 38.9% from the revenue of $1.8 billion in 2Q15. Revenue of the North America, Europe, and specialty segments rose by 5.6%, 61.8%, and 18.5%, respectively, between 2Q15 and 2Q16. The company’s gross profit margin fell by 4.5%, and its operating income rose by 21.4%. It reported restructuring and acquisition-related expenses of $9.1 million in 2Q16, as compared to $1.7 million in 2Q15.

Its net income and EPS (earnings per share) rose to $140.7 million and $0.46, respectively, in 2Q16, as compared to $119.7 million and $0.39 in 2Q15. It reported adjusted EPS of $0.55 in 2Q16, which is a rise of 34.2% over 2Q15.

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LKQ’s net receivables and inventories rose by 68.6% and 21.5%, respectively, between 4Q15 and 2Q16. It reported cash and cash equivalents of $273.2 million in 2Q16, as compared to $87.4 million in 4Q15. Its current ratio fell to 2.8x, and its debt-to-equity ratio rose to 1.5x in 2Q16, as compared to 3.1x and 0.81x, respectively, in 4Q15.

Projections

The company has made the following projections for fiscal 2016:

  • organic revenue growth for parts and service in the range of 5.5%–7.0%
  • adjusted net income in the range of $555 million–$580 million
  • adjusted EPS in the range of $1.79–$1.87
  • cash flow operations in the range of $585 million–$635 million
  • capital expenditure in the range of $200 million–$225 million

For an ongoing analysis of this sector, please visit Market Realist’s Consumer Discretionary page.

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