Wednesday's IBD 50 Stocks to Watch pick is a leading auto parts retailer forming a flat base and is near a buy point. Genuine Parts is No. 1 in its industry group.
The company's Q3 earnings release is Thursday, which could spark a big move in the stock.
The Atlanta-based auto parts company receives 66% of its net sales from its Automotive Parts Group and 34% from its Industrial Parts Group. The company distributes auto parts throughout North America, Europe, Australia and Asia-Pacific regions.
Genuine Parts markets 650,000 parts in North America under the Napa brand. European brands include Napa and GroupAuto. Its Asia Pacific region brands include Repco and Napa. The industrial parts group offers over 12 million parts through its Motion Industries outlets in North America, Australia, New Zealand, Indonesia and Singapore.
The company acquired Kaman Distribution Group in January for about $1.3 billion in cash. The deal was constructed to enhance scale and increase market share. KDG is a leading power transmission, automation and fluid power industrial distributor with operations throughout the U.S.
Genuine Parts holds the top spot in the Retail/Wholesale Auto Parts industry group. The group is ranked a high 23rd out of the 197 IBD groups. Genuine is the fourth-largest company in the group based on market cap.
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Auto Parts Stock In A Base Nearing A Buy Point
The auto parts stock is in a six-week-old flat base with a buy point of 165.09. Shares are within 3% of the entry point, which coincides with a 52-week high. And the relative strength line hit a new high, as indicated by blue dot on the weekly MarketSmith chart.
Shares rose sharply on heavy volume after its Q2 earnings release July 27, prompting two analyst upgrades, adding another boost to the stock. Shares continued to rise, then pulled back in mid-September, but gained new footing in late September and early October.
Earnings Beat Last Quarter: Can They Do It Again?
Genuine is scheduled to report third-quarter earnings on Thursday before the market opens. The company's Q2 EPS beat views by 8% and also topped sales estimates.
"GPC achieved another record quarter, consisting of double-digit sales and earnings increases and a steady cadence of continued growth," said Paul Donahue, chairman and CEO. The company raised its full-year guidance, including sales and adjusted EPS numbers.
"Our outlook for the full-year reflects our ongoing confidence in our businesses to execute our strategies despite a dynamic and uncertain external landscape," Donahue added.
Quarterly EPS grew 26% in the June quarter, accelerating from 24% in Q1 and 18% in Q4 of last year.
Analysts are expecting Q3 EPS of $2.05, according to FactSet. Analysts project 15% annual EPS growth in 2022 and 7% in 2023. Keep in mind, stock price can be extra volatile around an earnings release.
Annualized gross margin has grown consistently year-over-year for over five years.
GPC holds a highly rated 9 Earnings Stability Rating in a 1 to 99 scale, with a lower number being better. The metric measure earnings stability based on three to five years of earnings history.
Quarterly sales growth has been consistent in the range of 13% to 19% in the last three quarters.
Strong Fundamentals For This Auto Parts Stock
Genuine earned a high 98 Composite Rating and a respectable 89 EPS Rating. Its 94 Relative Strength Rating means it outperformed 94% of stocks in the IBD database.
The company has a 30% return on equity, a measure of profitability and financial efficiency. The CAN SLIM investing system looks for a minimum 17% ROE, with the best performing growth stocks often in the 25%-50% range.
Genuine pays an annualized 2.2% dividend to shareholders.
Institutions Getting Onboard
Mutual funds own 40% of GPC, with 1,661 funds owning it in September, up from 1,648 in June and 1,588 in March, according to MarketSmith.
Genuine hold a favorable B Sponsorship Rating on a scale of A through E, with A being the best. The metric measures a three-year performance of the funds owning the stock.
