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In August, US auto sales surged by 16.2% year-over-year, reaching 1,341,169 units. This substantial increase in auto sales directly correlates with a growing need for auto parts and components due to the rise in the number of vehicles on the road.
Therefore, I think investors could consider adding quality auto part stocks O’Reilly Automotive, Inc. (ORLY), Genuine Parts Company (GPC), and LKQ Corporation (LKQ), which boasts impressive profit margins, to one’s portfolio.
The automotive part market is being driven by car owners’ desire to enhance their vehicles’ performance. Also, the shift towards electric and hybrid vehicles in the global transportation sector presents new opportunities for auto component manufacturers.
As a result, the auto part market is expected to expand at a CAGR of 7.5% from 2023 to 2032.
In addition, the global automotive repair and maintenance services market is driven by the increasing trend of vehicle customization, rising disposable income levels, and stricter automotive safety regulations.
According to Future Market Insights, the global automotive repair market is expected to reach $915.88 billion this year and is projected to grow at a CAGR of 7.2% to reach $1.85 trillion by 2033.
Furthermore, the auto industry is transforming digitally with technologies like IoT, AI, and blockchain, resulting in manufacturing advancements. Service companies are using AI-based vehicle inspection to expand and cut costs.
Considering these conducive trends, let’s look at the fundamentals of the three Auto Parts stocks, starting with number 3.
Stock #3: O’Reilly Automotive, Inc. (ORLY)
ORLY is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. Its offerings include new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, etc.
ORLY’s trailing-12-month net income margin of 14.84% is 244.7% higher than the 4.30% industry average. Its trailing-12-month EBIT and EBITDA margins of 20.13% and 22.64% are 176.7% and 108.3% higher than the 7.28% and 10.87% industry average.
During the second quarter that ended June 30, 2023, ORLY repurchased 0.80 million shares of its common stock at an average price per share of $904.37, for a total investment of $680 million.
In the fiscal second quarter that ended June 30, 2023, ORLY’s sales increased 10.8% year-over-year to $4.07 billion. Its gross profit rose 10.7% from the year-ago quarter to $2.09 billion. The company’s net income and EPS grew 8.8% and 16.5% from the prior-year quarter to $627.37 million and $10.32, respectively.
ORLY’s EPS and revenue are expected to rise 12.5% and 6.7% year-over-year to $10.31 and $4.05 billion in the fiscal third quarter ending September 2023. It surpassed EPS estimates in all of the four trailing quarters, which is remarkable.
The stock has gained 30.6% over the past year to close the last trading session at $945.81.
ORLY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #27 among 60 stocks in the A-rated Auto Parts industry.
Beyond what is stated above, we’ve also rated ORLY for Growth, Value, and Momentum. Get all ORLY ratings here.
Stock #2: Genuine Parts Company (GPC)
GPC distributes automotive replacement parts and industrial parts and materials. It operates through the Automotive Parts Group and Industrial Parts Group segments.
GPC’s trailing-12-month net income margin of 5.30% is 23.1% higher than the 4.30% industry average. Its trailing-12-month EBIT margin of 7.48% is higher than the industry average of 7.28%.
On August 15, 2023, GPC declared a regular quarterly dividend of $0.95 per share on the company’s common stock, payable to its shareholders on October 2, 2023. It boasts an impressive track record of 66 years of consistent dividend growth.
The company’s annual dividend of $3.80 translates to a 2.50% yield on the prevailing prices, while its four-year average dividend yield is 2.76%. Its dividend payouts have grown at CAGRs of 6.1% and 5.7% over the past three and five years, respectively.
On August 2, GPC announced the acquisition of Recambios y Accesorios Gaudí, S.L. (Gaudi) by its subsidiary, Alliance Automotive Group (AAG), effective July 31, 2023. Gaudi, a leading player in Spain’s automotive sector, operates 22 stores, primarily in Catalonia and Madrid, generating around €100 million ($107.08 million) in annual revenue.
This acquisition strengthens GPC’s position in Spain, the fifth-largest European automotive market, and enhances the potential for expanding the NAPA brand in Europe. The move aims to improve profitability and customer service in the country while building on AAG Iberia’s strategic presence in the automotive aftermarket.
GPC’s net sales increased 5.6% year-over-year to $5.92 billion in the fiscal second quarter that ended June 30, 2023. Its gross profit grew 8.9% from the year-ago quarter to $2.13 billion. The company’s net income and EPS amounted to $344.49 million and $2.44, respectively.
Analysts expect GPC’s revenue and EPS for the third quarter (ending September 2023) to increase 4.4% and 9.1% year-over-year to $5.92 billion and $2.43. Moreover, the company surpassed its EPS estimates in each of the trailing four quarters.
Shares of GPC rose marginally intraday to close the last trading session at $151.01.
GPC’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Quality and Sentiment. Within the same industry, it is ranked #23.
In addition to the POWR Ratings we’ve stated above, one can access GPC’s ratings for Growth, Value, Momentum, and Stability here.
Stock #1: LKQ Corporation (LKQ)
LKQ provides automotive replacement parts and related products. It operates through four segments: Wholesale-North America; Europe; Specialty; and Self Service. The company’s offerings include bumper covers, body panels, lights, glass, salvage parts like engines and transmissions, brake components, steering parts, filters, and recyclable materials.
LKQ’s trailing-12-month net income margin of 7.80% is 81.3% higher than the 4.30% industry average. Its trailing-12-month EBIT and EBITDA margins of 11.30% and 13.36% are 55.3% and 22.9% higher than the 7.28% and 10.87% industry average.
On Aug 1, LKQ announced that it had finalized the acquisition deal where Uni-Select was purchased by 9485-4692 Québec Inc., a wholly-owned LKQ subsidiary, through a plan of arrangement under the Business Corporations Act (Québec).
Uni-Select is a leader in the distribution of automotive refinish and industrial coatings and related products in North America and a leader in the automotive aftermarket parts business in Canada and the United Kingdom.
The company pays an annual dividend of $1.10, which translates to a 2.16% yield on the current price level, higher than its four-year average dividend yield of 0.68%.
In the second quarter that ended June 30, 2023, LKQ’s revenue increased 3.2% year-over-year to $3.40 billion. Its gross margin rose 3.5% from the year-ago quarter to $1.41 billion. During the quarter, the company’s cash flow from operations and free cash flow stood at $480 million and $414 million, respectively,
Street expects LKQ’s EPS for the fiscal third quarter (ending September 2023) to increase marginally year-over-year to $0.98. Its revenue is expected to rise 12.9% from the previous-year quarter to $3.51 billion in the same quarter. In addition, the company topped the consensus EPS estimates in three of the trailing four quarters.
The stock declined marginally intraday to close the last trading session at $50.44.
It’s no surprise that LKQ has an overall rating of B, which equates to a Buy in our proprietary rating system.
LKQ has a B grade for Quality, Stability, and Growth. It is ranked #21 in the same industry.
Access LKQ’s additional ratings for Value, Sentiment, and Momentum here.
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ORLY shares were trading at $952.01 per share on Friday morning, up $6.20 (+0.66%). Year-to-date, ORLY has gained 12.79%, versus a 17.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor’s degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More…