Auto parts companies in the United States
In the previous part of this series, we compared mainstream automakers’ forward valuation multiples. US auto sales data until May 2017 have fueled the possibility of tough times ahead for the auto industry. Just like automakers, auto parts sellers could be in trouble sooner or later if any downturn is confirmed in US auto sales. O’Reilly Automotive (ORLY), AutoZone (AZO), and Advance Auto Parts (AAP) are the three largest auto parts retailers in the US market. Now let’s find out what Wall Street analysts are recommending for their stocks in June 2017.
Recommendations for auto parts companies
According to data compiled by Reuters on June 13, 2017, about 70.0%, 48.0%, and 54.0% of analysts have given “buy” recommendations for ORLY, AZO, and AAP, respectively.
About 26.0% of analysts have recommended a “hold” for O’Reilly, and 4.0% have suggested a “sell.” For AutoZone, none of the analysts have recommended a “sell,” and 52.0% have recommended a “hold.” In the case of Advance Auto Parts, about 39.0% of analysts are recommending a “hold,” while the remaining 7.0% are bearish on the stock, recommending a “sell.”
Upside potential comparison
As of June 13, 2017, auto parts companies’ 12-month stock price targets and upside potentials are as follows:
- O’Reilly Automotive: Analysts’ consensus price target is $297.09, reflecting a return potential of 27.0% from its market price of $54.
- AutoZone: The stock was trading at $612.08, and analysts gave it a target price of $741.05, reflecting a 21.0% upside potential.
- Advance Auto Parts: Analysts have given the company a price target of $159.20, reflecting a return potential of about 21.0% from its market price of $131.63.
Note that profit margins of auto parts retailers typically are much higher than automakers (XLY) such as General Motors (GM) and Ford (F). That’s because auto manufacturing is a much higher capital-intensive business.
In our next and final part, we’ll look at some key positive factors for the US auto industry in June 2017.