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AAP: What Analysts Expect in the Second Half of 2018

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Advance Auto Parts’ earnings

In the last few quarters, the auto parts retail industry struggled due to weak demand. Earlier this year, Advance Auto Parts’ (AAP) management suggested that the weakness is temporary. The long-term growth shouldn’t be impacted by the weakness. In the second quarter, Advance Auto Parts’ strong results boosted investors’ confidence and raised their hopes about the auto parts retail industry’s future growth prospects. In this part, we’ll discuss what analysts think about Advance Auto Parts’ growth in the coming quarters.

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Earnings estimates for the second half of 2018

According to analysts’ consensus estimates, the positive trend in Advance Auto Parts’ earnings will likely continue in the second half of 2018. Analysts expect the company’s third-quarter adjusted EPS to be $1.74, which is ~22% higher than $1.43 in the third quarter of 2017. The estimates for the company’s fourth-quarter earnings reflect a positive growth of ~46% to $1.12—compared to $0.77 in the fourth quarter 2017.

Overall, these estimates indicate consistent strength in Advance Auto Parts’ earnings going forward in fiscal 2018.

Sales estimates

Analysts expect Advance Auto Parts’ sales growth to remain slightly positive in the second half of 2018. According to the estimates, the company’s third-quarter revenues should be at $2.21 billion—up ~1.2% YoY (year-over-year). Advance Auto Parts’ fourth-quarter revenues are expected to be at $2.05 billion with an ~0.8% YoY rise.

Good spring-related demand could help Advance Auto Parts’ direct peers’ (FXD) sales including O’Reilly Automotive (ORLY) and AutoZone (AZO). An increase in the on-road average vehicle age was a positive indicator for auto parts retailers’ business—unlike automakers Ford (F) and Toyota (TM). Old vehicles have a higher chance of wear and tear in extreme weather conditions compared to new vehicles.

Next, we’ll discuss how Advance Auto Parts’ valuation multiples look after its second-quarter earnings.

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