The sales of new cars have declined as a function of a global semiconductor chip shortage that has hamstrung automobile production. However, the demand for used cars has increased significantly since last year, as people have taken steps to avoid public transportation due to fear of catching COVID-19 . This has caused used car prices to spike. According to the Manheim Used Vehicle Value Index, used car prices are up 18.8% from this time last year.
This bodes well for the auto parts retailers because the growing used car market drives increased demand for aftermarket auto parts because sed cars need to be repaired and parts replaced to keep running. According to the 2021 Joint Channel Forecast Model from the Automotive Aftermarket Suppliers Association (AASA) and the Auto Care Association, U.S. light-duty automotive aftermarket sales are expected to increase more than 11% to $325 billion in 2021.
Given this backdrop, we think auto parts manufacturers O’Reilly Automotive, Inc. (ORLY), LKQ Corporation (LKQ), Autoliv, Inc. (ALV), and Dana Incorporated (DAN) could be solid additions to one’s portfolio now.
O’Reilly Automotive, Inc. (ORLY)
ORLY in Springfield, Miss., operates as a retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. The company provides a range of new and remanufactured automotive hard parts and maintenance items.
ORLY’s sales increased 12.1% year-over-year to $3.47 billion in its fiscal second quarter, ended June 30. Its operating income improved 8% from its year-ago value to $795.58 million, while its net income improved 10.1% year-over-year to $585.45 million. The company’s EPS increased 17.3% year-over-year to $8.33.
Analysts expect ORLY’s revenues to increase 8.9% year-over-year to $12.63 billion in the current year. A $27.84 consensus EPS estimate for the current year indicates an 18.3% rise from the last year. In addition, the company surpassed the Street’s EPS estimates in each of the trailing four quarters. ORLY’s shares have gained 23.6% in price over the past year and 30.6% year-to-date.
The stock has an A grade for Quality, and a B grade for Sentiment in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree. Among the 67 stocks in the B-rated Auto Parts industry, ORLY is ranked #34.
To see additional ORLY ratings for Growth, Value, Stability, and Momentum, click here.
LKQ Corporation (LKQ)
LQT distributes replacement parts, components, and systems used in the repair and maintenance of vehicles. It also operates self-service retail operations under the LKQ Pick Your Part name, and designs, manufactures, and markets vehicle equipment and accessories. LQT is headquartered in Chicago.
On June 22, Elitek Vehicle Services, LKQ’s diagnostic services business, announced that it was expanding its services beyond on-site mobile diagnostics and repair, including remote automotive diagnostics and remote programming. Its expanded offering should allow the company to be more responsive to a broader range of customers.
On May 25, LKQ acquired the business and assets of Green Bean Battery, LLC, a hybrid battery reconditioner and installer. The acquisition should enable the company to leverage Green Bean’s proprietary technology and sustainably focused products to enhance its parts and services offerings.
LKQ’s revenue increased 30.8% year-over-year to $3.44 billion in its fiscal second quarter, ended June 30. Its operating income stood at $444.67 million, up 146.4% from the same period last year. Its net income attributable to LKQ stockholders grew 156.4% from its year-ago value to $304.62 million, while the company’s EPS increased 159% year-over-year to $1.01.
A $3.28 billion consensus revenue estimate for its fiscal third quarter (ending September 2021) indicates a 7.6% increase year-over-year. The Street expects the company’s EPS to rise 14.7% from its prior-year quarter to $0.86 in the current quarter. LKQ has an impressive earnings surprise history as well; it beat the consensus EPS estimates in each of the trailing four quarters.
LKQ stock has gained 58% in price over the past year to close yesterday’s trading session at $52.66. The stock has advanced 45% year-to-date.
The company’s strong fundamentals are reflected in its POWR Ratings. LKQ has an overall A rating, which equates to Strong Buy in our proprietary POWR Ratings system. LKQ has a B grade for Growth, Sentiment, and Quality. It is ranked #9 in the Auto Parts industry.
Click here to view additional LKQ ratings for Momentum, Value, and Stability.
Autoliv, Inc. (ALV)
ALV is a worldwide leader in automotive safety, selling to all major car manufacturers globally. The Stockholm, Sweden-based concern develops, manufactures, and supplies automotive safety systems to the automotive industry in Europe, the Americas, China, Japan, and Asia.
On August 19, ALV declared a $0.62 quarterly dividend per share, payable on September 24, 2021, to ALV shareholders of record on the close of business on September 9.
On May 18, ALV announced its plans to construct a new steering wheel manufacturing plant in Aguascalientes, Mexico. “This investment will increase capacity, but it will also allow us to optimize our manufacturing processes at both facilities and it will create exciting opportunities for our team members in Mexico,” said Kevin Fox, President, Autoliv Americas.
For its fiscal second quarter, ended June 30, ALV’s net sales increased 93% year-over-year to $2.02 billion. Its operating income grew 170.1% from its year-ago value to $164 million. ALV’s gross profit came in at $384 million, indicating a 2,568% rise year-over-year. The company’s EPS increased 185.7% year-over-year to $1.20.
The Street expects ALV’s revenues to rise 20% year-over-year to $8.94 billion in the current year. A $6.13 consensus EPS estimate for the current year indicates a 94.6% improvement year-over-year. Furthermore, ALV has a notable earnings surprise history; it surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past year, ALV gained 13.2% in price to close its last trading session at $88.08.
It’s no surprise that ALV has an overall rating of B, which equates to Buy in our POWR Ratings system. ALV has a B grade for Growth, Value, and Quality. It is ranked #18 in the Auto Parts industry.
Get additional POWR Ratings for Stability, Momentum, and Sentiment here.
Dana Incorporated (DAN)
DAN provides power-conveyance and energy-management solutions for vehicles and machinery in North America, Europe, South America, and the Asia Pacific. The Maumee, Ohio, company operates in four segments: Light Vehicle Drive Systems; Commercial Vehicle Drive and Motion Systems; Off-Highway Drive and Motion Systems; and Power Technologies.
On September 13, DAN launched its new Spicer Electrified™ e-Powershift transmission, which is a modular and flexible two-speed solution for electrified heavy-duty mining vehicles. The launch demonstrates DAN’s prowess in developing rapid and effective market-ready solutions to streamline and accelerate the mining industry’s transition to electrification.
Earlier in the same month, DAN announced an expansion of its Spicer Electrified™ e-Powertrain offerings to include a family of single and tandem e-Axles designed for a wide variety of applications. These purpose-built, zero-emission offerings should allow the company to strengthen its position in the heavy-duty electric vehicle space.
For the second quarter, ended June 30, DAN’s net sales increased 104.5% year-over-year to $2.21 billion. Its adjusted EBITDA grew 4,760% from its year-ago value to $233 million, while its adjusted net income attributable to the company improved 186.9% year-over-year to $86 million over the period. The company’s adjusted EPS increased 185.5% year-over-year to $0.59.
A $2.19 billion consensus revenue estimate for the fiscal third quarter, ending September 2021 indicates a 9.7% improvement from the same period last year. Analysts expect the company’s EPS to be $0.60 in the current quarter, indicating a 62.2% rise year-over-year. Also, DAN topped the Street’s EPS estimates in three of the trailing four quarters.
DAN has gained 57.7% in price over the past year. The stock has gained 3.2% intraday to close yesterday’s trading session at $22.61.
The company has an overall B rating, translating to Buy in our proprietary rating system. In addition, it has an A grade for Value, and a B for Growth. It is ranked #25 in the Auto Parts industry.
Beyond what we’ve stated above, we have also rated DAN for Momentum, Quality, Sentiment, and Stability. Click here to view all DAN ratings.
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ORLY shares were trading at $608.03 per share on Thursday afternoon, up $7.11 (+1.18%). Year-to-date, ORLY has gained 34.35%, versus a 20.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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