On Thursday, CFRA downgraded shares of Advance Auto Parts (NYSE: NYSE:AAP) from Hold to Sell. The firm significantly reduced its 12-month price target for the company's stock to $25 from the previous $55. This adjustment is based on a projected price-to-earnings ratio (P/E) of 17.9x for the year 2025, which aligns with the company's historical multiples.
The downgrade comes after Advance Auto Parts reported a third-quarter adjusted earnings per share (EPS) of a $0.04 loss, which is a stark contrast to the $0.54 consensus and a considerable drop from the $1.19 loss in the same quarter the previous year. The decline in earnings was attributed to a weaker-than-anticipated top line, with revenue decreasing by 3% to $2.15 billion. This figure fell short of the consensus estimate by $520 million. Comparable store sales also saw a decrease of 2.3%, which was 60 basis points below the consensus prediction.
Advance Auto Parts has also revised its guidance for the fourth quarter of 2024, projecting net sales of $1.90 billion and an adjusted EPS ranging between a $1.50 loss and a $0.90 loss. These figures are substantially lower than the current consensus, which stands at $2.00 billion for net sales and a $0.06 gain for adjusted EPS. Additionally, the company has presented preliminary guidance for the full year 2025 and financial objectives for the full year 2027. One of the key goals includes reducing its leverage ratio, as measured by adjusted debt to EBITDAR, from the current 3.7x to a target range of 3.0x to 4.0x by the end of 2025, and further to 2.5x by the end of 2027.
The analyst's decision to downgrade the stock reflects concerns over Advance Auto Parts' ongoing challenges. The company is actively trying to improve its financial position through measures such as asset sales and store closures. However, CFRA's lowered EPS estimates to $0.10 from $2.30 for 2024 and to $1.40 from $3.65 for 2025 indicate a cautious outlook on the company's ability to turn its performance around in the near term.
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