On Thursday, RBC Capital adjusted its stance on Advance Auto Parts (NYSE:AAP), reducing the stock's price target from $68.00 to $65.00, while retaining a Sector Perform rating on the shares. The modification follows observations of the automotive aftermarket parts provider's ongoing challenges and a subdued outlook for the second quarter margins.
The RBC Capital report noted that while the firm acknowledges the strategic vision of Advance Auto Parts' management, it anticipates that progress may be inconsistent and slow to materialize. This perspective is partly due to the persistent weaknesses in the do-it-yourself (DIY) segment of the market.
In light of these factors, RBC Capital has revised its projections for the company's comparable sales and earnings per share. Comparable sales estimates for the fiscal years 2024 and 2025 have been adjusted to approximately flat and a 1.3% increase, respectively, a slight change from the previous forecasts of a 1.0% increase for FY 2024 and a steady 1.3% for FY 2025. Additionally, the earnings per share (EPS) estimates have been modified to $3.64 for FY 2024 and $4.32 for FY 2025, down from the earlier estimates of $3.82 and $4.52, respectively.
The revised price target of $65.00 is based on approximately 15 times the firm's updated FY 2025 EPS estimate of $4.32. However, RBC Capital signaled that these estimates hold limited weight at the moment, as they expect numbers will need to be reassessed following the announcement of a potential Worldpac sale. Advance Auto Parts has yet to provide detailed guidance on its continuing operations, leaving some uncertainty in the current financial projections.
InvestingPro Insights
For investors considering the recent analysis by RBC Capital on Advance Auto Parts, incorporating real-time data from InvestingPro can offer additional context. With a market capitalization of $3.72 billion and a high price-to-earnings (P/E) ratio of 140.36, which adjusts to 125.33 on a last twelve months basis as of Q4 2023, the stock's valuation is a key point of interest. The revenue for the same period stood at approximately $11.29 billion, with a modest year-over-year growth of 1.19%. Notably, the gross profit margin maintained a strong 40.07%, reflecting the company's ability to manage cost of goods sold effectively.
Advance Auto Parts has experienced significant price volatility, with a 1-week total return of -10.0% and a 1-month return of -14.39%, indicating recent market pressures. However, it's important to note that the company has demonstrated a commitment to shareholders by maintaining dividend payments for 19 consecutive years, offering a current dividend yield of 1.6%.
Among the InvestingPro Tips, it's highlighted that the stock is currently in oversold territory according to the Relative Strength Index (RSI), and analysts predict profitability for the year. These insights, combined with the fact that the company has been profitable over the last twelve months, may suggest potential for recovery in the investor's eye. For those looking for more in-depth analysis, there are additional InvestingPro Tips available on the InvestingPro platform, where users can also take advantage of the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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