Recent Rally Leaves Advance Auto Parts’ Shares Fairly Valued: Morningstar


Advance Auto Parts’ shares, which surged more than 25% since the end of January, leave the company’s shares fairly valued, according to analysts at Morningstar who said their view of its prospects is undimmed.

“While the 25% rally in narrow-moat Advance’s shares since the end of January leaves them trading near our $184 per share valuation, our favorable view of the firm’s standing is intact. Fiscal 2021 should pose challenges as Advance laps 2020’s pandemic-related sales surge, but a cold winter, the sector’s resilience in unsettled economies, and building momentum from optimization initiatives should still result in low-single-digit top-line growth and around 60 basis points of operating margin expansion (to around 8.8%),” said Zain Akbari, equity analyst at Morningstar.

“Longer-term, we continue to expect it to take time for Advance to reach its full potential (we forecast adjusted operating margin nearing 12% by the end of our 10-year explicit forecast), and a halting return to broader economic normalcy and a nonlinear turnaround for the company should lead to volatility. So, we suggest investors monitor the shares for future buying opportunities.”

Advance Auto Parts Inc is estimated to report earnings on May 18, 2021. According to Zacks Investment Research, based on 6 analysts’ forecasts, the consensus EPS forecast for the quarter is $2.47. The reported EPS for the same quarter last year was $0.91.

Advance Auto Parts Stock Price Forecast

Thirteen analysts who offered stock ratings for Advance Auto Parts in the last three months forecast the average price in 12 months of $187.55 with a high forecast of $210.00 and a low forecast of $157.00.

The average price target represents a 0.86% increase from the last price of $185.96. Of those 13 analysts, eight rated “Buy”, four rated “Hold” while one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $195 with a high of $230 under a bull scenario and $130 under the worst-case scenario. The firm gave an “Overweight” rating on the automotive aftermarket parts retailer’s stock.

“AAP operates in a defensive (recession-resistant) category and has one of the largest long-term EBIT margin expansion opportunities in our coverage (we estimate 300-400 bps over time). COVID-19 slowed parts of AAP’s transformation but gross and EBIT margin upside from internal initiatives is still expected beginning in 2021,” noted Simeon Gutman, equity analyst at Morgan Stanley.

“Significant and improving FCF generation plus share repurchases likely to enhance EPS growth. We think the combination of a defensive category, AAP’s progress generating stable top-line growth, and significant margin upside all make for a positive risk/reward skew.”

Several other analysts have also updated their stock outlook. Advance Auto Parts had its price objective upped by Stephens to $180 from $175. The firm presently has an “equal weight” rating on the stock. Citigroup set a “buy” rating and a $193 target price on the stock. Wells Fargo raised their target price to $185 from $165 and gave the stock an “equal weight” rating.