While the Russia-Ukraine conflict has exacerbated logistical disruptions, the auto parts industry has witnessed strong demand. The adoption of advanced technology in aftermarket component manufacturing and rising e-commerce sales of auto parts should keep driving the industry’s growth.
In addition, demand for electric vehicles is rising with highly fluctuating oil prices, which is expected to drive growth in the auto parts sector. The worldwide automotive aftermarket is expected to grow at a 4.8% CAGR through 2030.
Therefore, we think fundamentally strong yet reasonably priced auto parts stocks LKQ Corporation (LKQ) and Allison Transmission Holdings, Inc. (ALSN) could be solid bets now.
LKQ Corporation (LKQ)
LKQ distributes replacement parts, components, and systems used to repair and maintain vehicles. The Chicago company operates through three segments: North America, Europe, and Specialty.
On February 17, 2022, Dominick Zarcone, president and CEO, said, “The continued robust cash flow generation enabled us to maintain our balanced capital allocation policy, and through our stock repurchase program and inaugural quarterly dividend payment, we returned $950 million to our stockholders in 2021.”
For the fourth quarter, ended Dec. 31, 2021, LKQ’s revenue came in at $3.19 billion, up 7.9% year-over-year. Its net income was $236.28 million, up 30.5% year-over-year, while its EPS came in at $0.81, up 37.3% year-over-year.
In terms of forward Price/Book, LKQ’s 2.2x compares with the 2.69x industry average.
LKQ’s revenue is expected to be $13.93 billion in 2023, representing a 3.2% rise. Its EPS is estimated to increase 33.5% per annum for the next five years. The stock surpassed the EPS estimates in each of the trailing four quarters, and has gained 6.5% over the past year to close yesterday’s trading session at $45.53.
LKQ’s POWR Ratings reflect its promising outlook. It has an overall B rating which represents a Buy in our POWR Rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
LKQ has a B grade for Value, Sentiment, and Quality. It is ranked #3 of 69 stocks in the Auto Parts industry. Click here to see the additional POWR Ratings for LKQ (Growth, Momentum, and Stability).
Allison Transmission Holdings, Inc. (ALSN)
ALSN, together with its subsidiaries, designs, manufactures, and sells commercial and defense fully-automatic transmissions for medium-and heavy-duty commercial vehicles and medium- and heavy-tactical U.S. defense vehicles worldwide. ALSN is headquartered in Indianapolis, Ind.
On March 9, 2022, ALSN announced its partnership with Mack Trucks to expand its medium-duty product portfolio. Rohan Barua, Vice President, North America Sales, Global Channel and Aftermarket of ALSN, said, “The increased ratings enabled by our 3000 Series transmission will increase the MD Series addressable market by approximately 25,000 vehicles annually, expanding vehicle options for Mack’s customers and adding breadth of applications to the company’s medium-duty portfolio.”
For the fourth quarter, ended Dec. 31, 2021, ALSN’s net sales increased 20.4% year-over-year to $644 million. The company’s net income came in at $118 million, up 96.7% year-over-year, while its EPS was $1.15, up 117% year-over-year.
ALSN’s 6.86x non-GAAP forward P/E compares with the 17.97x industry average.
ALSN’s revenue is expected to grow 13% year-over-year to $2.71 billion in 2022. Its EPS is estimated to grow 26.9% year-over-year to $5.24 in 2022. It surpassed the Street’s EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 13.7% to close yesterday’s trading session at $40.36.
ALSN has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, it has an A grade for Quality and a B grade for Value.
ALSN is ranked #18 in the Auto Parts industry. Click here to see ALSN’s growth, Momentum, Stability, and sentiment ratings.
LKQ shares were trading at $47.05 per share on Tuesday morning, up $1.52 (+3.34%). Year-to-date, LKQ has declined -21.19%, versus a -2.95% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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