Why Advance Auto Parts Lost 12% in February – The Motley Fool

March 9, 2022 by No Comments

What happened

Shares of Advance Auto Parts ( AAP -0.36% ) were sliding in February after the auto parts retailer reported fourth-quarter earnings and as the broader sell-off in the market over concerns about rising interest rates and the war in Ukraine seemed to weigh on it.

According to data from S&P Global Market Intelligence, the stock finished the month down 12%. As you can see from the chart below, the stock was mostly flat through the first half of the month before sliding in the third week of February after its earnings report came out.

AAP data by YCharts

So what

After a quiet first half of the month, Advance Auto Parts reported solid fourth-quarter results. The company finished with 8.6% revenue growth in the fourth quarter, adjusted for the extra week in 2020, to $2.4 billion with comparable sales up 8.2%. That edged out estimates at $2.37 billion.

Image source: Getty Images.

Profitability also improved as adjusted gross margin increased 145 basis points to 46.8%, an impressive feat during a supply chain crunch. Meanwhile, adjusted operating income increased 25% to $176.8 million, and adjusted earnings per share jumped 36% to $2.07, ahead of estimates at $1.96.

The company also said it would raise its quarterly divided 50% to $1.50 per share, equal to a 3% yield and a sign of confidence in its future. It also increased its share repurchase authorization by $1 billion. 

Looking ahead, the company called for more modest growth in 2022, forecasting 1% to 3% comparable sales growth and revenue of $11.2 billion to $11.5 billion, or a 2% to 5% increase, which was ahead of the consensus at $11.17 billion. On the bottom line, it expects adjusted earnings per share of $13.20 to $13.75, or a 10% to 15% increase from 2021. 

Investors mostly shrugged off the report, and the stock slipped along with the broader markets on fears of rising interest rates, higher gas prices, and Russia’s invasion of Ukraine in the second half of the month.

Now what

For investors looking for a safe stock to help carry them through uncertain times with high inflation, a market pullback, and the war in Ukraine, Advance Auto Parts looks like a great bet. Auto parts companies tend to do well in recessions as drivers opt to repair their current vehicles rather than buy new ones, and the chip shortage has already led to unusually high prices for new and used vehicles, favoring companies like Advance, especially as the average age of a car on the road in the U.S. is already 12 years.

Throw in an appealing valuation and a 3% dividend yield and you have a formula for a stock that looks likely to beat the market this year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Source: https://www.fool.com/investing/2022/03/08/why-advance-auto-parts-lost-12-in-february/

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