The auto parts industry had a bumpy ride at the beginning of the coronavirus pandemic, with lockdown measures significantly reducing automobile usage. A significant decline in vehicle miles traveled led to reduced demand for auto parts nationwide. However, with the gradual reopening of the economy, people have begun looking for mobility options while maintaining social distance. As a result, the demand for used cars has increased significantly.
Because keeping a newly purchased used car or an existing old car functional requires periodic parts replacement, the auto parts industry has been seeing an increase in demand. The industry is also focusing more on marketing through online platforms to meet the rising demand.
Along with more used cars, aging vehicles in the United States should keep driving the growth of auto parts companies. According to a Global Market Insights report, the valuation of the automotive aftermarket industry is expected to cross $1100 billion by 2026.
Thus, we think auto parts companies Genuine Parts Company (GPC), LKQ Corporation (LKQ), and Cooper Tire & Rubber Company (CTB) should benefit from the increasing need for automobile parts, maintenance and repair services.
Genuine Parts Company (GPC)
Founded in 1928, GPC is a service organization engaged in the distribution of automotive replacement parts, industrial replacement parts, and electrical/electronic materials. The company’s segments include Automotive, Industrial and Other.
The company’s net income for the fourth quarter ended December 31, 2020 was reported to be $171.20 million, which is a considerable improvement from $8.92 million reported in the third quarter of 2019. The company’s revenue from the automotive segment was reported to be $2.82 billion and revenue from the industrial segment increased 1.4% sequentially. Its adjusted EPS increased 19.7% year-over-year to $1.52.
A consensus EPS estimate of $1.11 for the quarter ending March 31, 2021, represents a 20.7% improvement year-over-year. Moreover, GPC surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $4.24 billion for the quarter ending June 30, 2021 represents a 11% rise from the same period last year.
GPC increased the cash dividend payable to an annual rate of $3.26 per share compared with the previous dividend of $3.16 per share. The quarterly cash dividend of $0.82 per share is payable on April 1, 2021.The company also appointed Juliette W. Pryor as a new independent director on February 16, 2021. William P. Stengel was appointed to the position of President of the company on January 14, 2021. The stock has gained 5.7% over the past year and closed yesterday’s trading session at $98.94.
GPC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
GPC has a B grade for Momentum, Quality, and Stability. We have also graded GPC for Sentiment, Value, and Growth as well. Click here to access all of GPC’s ratings.
GPC is ranked #11 of 68 stocks in the A-rated Auto Parts industry.
LKQ Corporation (LKQ)
LKQ is a leading provider of alternative and specialty parts and services to repair and accessorize automobiles and other vehicles. The company operates primarily through three segments — North America, Europe, and Specialty. LKQ offers a broad range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles.
LKQ released its financial results for the fourth quarter and fiscal year 2020 ended December 31, 2020 today. Its net income was reported to be $181.01 million, up 28.9% year-over-year. Adjusted EPS for the fourth quarter was reported to be $0.69, representing an increase of 27.7% year-over-year. The company’s free cash flow was $246.48 million.
A consensus EPS estimate of $2.74 for the fiscal 2021 represents a 11.8% improvement year-over-year. LKQ has surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $12.25 billion for fiscal 2021, represents a 5.90% rise from the year ago period.
The company recently strengthened its European Logistics and Customer Centricity with a central distribution center in the Netherlands. The logistical layout of the same is expected to be completed in the second quarter of 2021, after which LKQ Fource will enter the testing phase. LKQ also announced in January that it is bringing its two mobile automotive services businesses together under a single brand, Elitek Vehicle Services. The stock has gained 12.8% over the past year and closed yesterday’s trading session at $36.78.
LKQ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
The stock has a B grade for Sentiment, Quality, Momentum and Stability. We have also graded LKQ for Value and Growth. Click here to access all LKQ’s ratings.
GPC is ranked #10 in the same industry.
Cooper Tire & Rubber Company (CTB)
CTB designs, manufactures, markets, and sells replacement tires in North America, Latin America, Europe, and Asia. The company specializes in the design, manufacture, marketing and sale of passenger car, light truck, medium truck, motorcycle and racing tires. CTB sells its products to independent tire dealers, wholesale and retail chains, digital channels and original equipment manufacturers, among others.
The company is scheduled to release its fourth quarter and full year 2020 financial results before the markets open on February 22, 2021. For the third quarter ended September 30, 2020 the company’s net sales increased 8.6% year-over-year to $764.85 million, with increases in both the America and international segment. Its operating profit has increased more than 225% year-over-year to $171.51 million. Its net income was reported to be $122.60 million, up 317.8% year-over-year. And its EPS also increased 317.2% year-over-year to $2.42.
A consensus EPS estimate of $0.55 for the quarter ending March 31, 2021, represents a 339.1% improvement year-over-year. CTB has surpassed the consensus EPS estimates in three of the trailing four quarters. The consensus revenue estimate of $624.52 million for the quarter ending March 31, 2021, represents a 17.5% rise from the same period last year.
The company named Tyrone Michael (T.J.) Jordan to its Board of Directors effective January 10, 2021. He is the former President and Chief Operating Officer of DURA Automotive Systems. CTB announced on November 17, 2020 that its Avon motorcycle tires have been utilized in a restoration of Evel Knievel’s original 1968-spec ‘American Eagle’ Laverda bike. The company also paid its 195th consecutive quarterly dividend of $0.11 on December 30, 2020. The stock has gained 55.5% over the past year and closed yesterday’s trading session at $42.73.
CTB’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has an A grade for Quality and Value also. We have also graded CTB for Stability, Sentiment, Momentum and Growth as well. Click here to access all CTB’s ratings.
CTB is ranked #8 in the same industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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GPC shares were unchanged in after-hours trading Thursday. Year-to-date, GPC has gained 0.65%, versus a 4.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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