On Wednesday, CFRA made an adjustment to the financial outlook for Advance Auto Parts (NYSE:AAP), increasing the price target from $60.00 to $70.00 while keeping a Hold rating on the stock. The revised target is based on a forward P/E of 15.7x for the year 2025, which represents a discount compared to the company's 5-year mean forward P/E of 17.9x.
The firm's decision comes after Advance Auto Parts reported first-quarter earnings per share (EPS) of $0.67, surpassing the consensus estimate of $0.61. This result, however, marked a 17% decrease from the previous year's $0.81 EPS. The earnings beat was attributed to lower-than-anticipated selling, general, and administrative expenses (SG&A), despite a slight 0.3% drop in revenue to $3.41 billion, which was about $20 million below the consensus. Comparable store sales saw a marginal decline of 0.2%, which was 40 basis points under the consensus forecast.
Advance Auto Parts also reported a contraction in gross margin by 80 basis points, coming in at 42.0%, which aligned with market expectations. While the company's EPS guidance for 2024 remains the same at $3.75 to $4.25, it has raised its net sales forecast slightly to a range of $11.3 billion to $11.5 billion, up from the previous range of $11.3 billion to $11.4 billion. This updated sales guidance is slightly above the current consensus of $11.35 billion.
CFRA's report also noted the favorable market conditions for the U.S. auto aftermarket, citing data from S&P Global Mobility which shows the average age of U.S. vehicles has reached a record 12.6 years. This trend indicates a growing demand for maintenance and repairs, which could benefit companies in the auto parts sector. Despite this, CFRA recommends investors focus on higher-quality names within the industry.
InvestingPro Insights
Following CFRA's update on Advance Auto Parts, a deeper dive into the company's financials using InvestingPro reveals additional insights. With a market capitalization of $4 billion, the company is trading at an elevated P/E ratio of 131.92, which is substantially higher than the 15.7x forward P/E cited by CFRA for the year 2025. This high earnings multiple might be a point of concern for value-oriented investors considering the company's stock.
Despite the high P/E ratio, InvestingPro Tips suggest that net income is expected to grow this year, and the company has a track record of maintaining dividend payments for 19 consecutive years, which could be a sign of financial stability and a commitment to returning value to shareholders. Additionally, the stock has experienced a significant price uptick of 37.06% over the last six months, reflecting investor optimism.
For readers looking to explore more about Advance Auto Parts' financial outlook, InvestingPro offers additional insights and tips. There are six more InvestingPro Tips available, which could help in making a well-informed investment decision. To benefit from these insights, use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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