AutoZone (AZO) vs. Advance Auto Components (AAP) vs. Modine Manufacturing Firm (MOD): Which Is the Finest Auto Inventory Purchase?


With strong demand for brand spanking new and used autos, the rising development for automobile customization, the introduction of superior applied sciences, and a big surge in e-commerce, the auto components {industry}’s outlook seems promising. Given the {industry}’s tailwinds, let’s discover out if AutoZone (AZO), Advance Auto Components (AAP), and Modine Manufacturing (MOD) are ideally suited auto inventory buys. Proceed studying….

Regardless of prevailing macro headwinds, the auto components {industry} is well-positioned to witness important development this yr and past, due to regular demand for brand spanking new and used cars, the rising recognition of auto customization and personalization, a number of technological developments, and the introduction of e-commerce platforms.

Given the {industry}’s stable footing, investing in basically sound auto shares AutoZone, Inc. (AZO) and Modine Manufacturing Firm (MOD) might be clever now. Nonetheless, buyers might maintain Advance Auto Components, Inc. (AAP) and watch for a greater entry level on this inventory.

In keeping with the most recent forecast launched by Cox Automotive, the U.S. automotive {industry}’s stable year-over-year gross sales restoration continued within the third quarter of 2023, pushed by pent-up demand and improved industry-wide stock ranges.

Regardless of greater rates of interest on new-vehicle loans and a strike by the United Auto Staff towards the most important home automakers, gross sales volumes in September are anticipated to succeed in round 1.3 million, up greater than 13% from a yr in the past. Additionally, gross sales quantity within the third quarter is forecast to surpass 3.9 million, a rise of greater than 15% over the identical interval a yr earlier.

Because the auto market enters the ultimate quarter of 2023, the Cox Automotive Business Insights workforce raised its full-year new-vehicle gross sales forecast to between 15.3 and 15.4 million models, a rise from the estimate of 15 million on the finish of the primary half.

The rising demand for brand spanking new and used cars, the continued development in aftermarket gross sales, and the rising demand for electrical and hybrid autos are key components propelling the auto components {industry}’s development. In keeping with a report by Market Analysis Future, the worldwide auto components market is projected to succeed in $755 billion by 2026, rising at a CAGR of seven.5%.

As well as, the auto components market’s development prospects seem vibrant, pushed by the rising development of automotive customization and personalization, like aesthetic look and efficiency upgrades, and several other technological developments, together with navigation methods, superior driver help methods, and infotainment methods.

The introduction of e-commerce platforms providing automotive components and equipment is additional anticipated to help the {industry}’s profitability. The auto components e-commerce aftermarket is predicted to succeed in $183.31 billion by 2029, exhibiting a CAGR of 14.6% throughout the forecast interval of 2023 to 2029.

With these favorable traits in thoughts, let’s check out the basics of the three Auto Components shares, beginning with quantity 3.

Inventory to Maintain:

Inventory #3: Advance Auto Components, Inc. (AAP)

AAP presents automotive substitute components, equipment, batteries, and upkeep gadgets for home and imported vehicles, vans, sport utility autos, and light-weight and heavy-duty vehicles. The corporate operates shops underneath the Advance Auto Components, Autopart Worldwide, and Carquest manufacturers and branches underneath the Worldpac title.

AAP up to date its full-year 2023 steerage with a modest step up in internet and comparable retailer gross sales development, pushed by the strengthening of its skilled enterprise. The corporate expects full-year internet gross sales of $11.25-$11.35 billion, up from the prior steerage of $11.20-$11.30 billion. Its comparable retailer gross sales are anticipated to be between destructive 0.5% to 0.5%.

Nonetheless, the corporate diminished its outlook for working revenue margin charge, EPS, and free money movement. This displays extra headwinds anticipated within the again half of the yr pushed by its ongoing dedication to sustaining aggressive value targets, impacts from a shift in channel combine, and investments in its workforce to assist retain prime expertise.

AAP anticipates fiscal yr 2023 EPS of $4.50-5.10, down from the earlier outlook of $6-$6.50. The corporate’s free money movement is predicted to be $150-$250 million, in comparison with the prior outlook of $200-$300 million.

AZO’s trailing-12-month gross revenue margin of 43.60% is 23% greater than the 35.45% {industry} common. Nonetheless, the inventory’s trailing-12-month EBIT margin and internet revenue margin of 5.11% and three.08% are decrease than the respective {industry} averages of seven.42% and 4.40%.

AAP’s internet gross sales for the second quarter ended July 15, 2023, elevated 0.8% year-over-year to $2.68 billion. Nonetheless, its gross revenue declined 3.2% from the year-ago worth to $1.15 billion. Its working revenue was $134.37 million, up 33.4% year-over-year. The corporate’s internet revenue decreased 40.9% from the prior yr’s quarter to $85.36 million.

As well as, the corporate reported earnings per frequent share of $1.43, a decline of 39.9% year-over-year. However its money and money equivalents stood at $277.06 million as of July 15, 2023, in comparison with $269.28 million as of December 31, 2022.

Analysts count on AAP’s income for the fiscal yr (ending December 2023) to extend 0.9% year-over-year to $11.26 billion. Nonetheless, the corporate’s EPS for the continued yr is predicted to say no 63.6% year-over-year to $4.75. Additionally, it missed the consensus EPS estimates in three of the trailing 4 quarters.

For the fiscal yr 2024, the corporate’s income and EPS are estimated to extend 2.1% and 21.6% from the prior yr to $11.49 billion and $5.77, respectively.

Shares of AAP have declined 15.5% over the previous month and 52.2% over the previous six months to shut the final buying and selling session at $54.82.

AAP’s POWR Rankings mirror its combined prospects. The inventory has an total C score, equating to a Impartial in our proprietary score system. The POWR Rankings are calculated by contemplating 118 various factors, with every issue weighted to an optimum diploma.

AAP has a B grade for High quality and Worth. It has a C grade for Momentum. However, the inventory has an F grade for Sentiment. It’s ranked #49 out of 60 shares within the A-rated Auto Components {industry}.

Click on right here for the extra POWR Rankings for AAP (Stability and Development).

Shares to Purchase:

Inventory #2: AutoZone, Inc. (AZO)

AZO retails and distributes automotive substitute components and equipment. The corporate gives varied merchandise for vehicles, sport utility autos, vans, and light-weight vehicles. Its merchandise embody A/C compressors, batteries and equipment, bearings, belts and hoses, calipers, chassis, clutches, CV axles, engines, gas pumps, fuses, ignition and lighting merchandise, mufflers, and radiators.

Beneath its share repurchase program, AZO repurchased 403 thousand shares of its frequent inventory throughout the fourth quarter at a median value per share of $2.502, for a complete funding of $1 billion. For fiscal yr 2023, the corporate repurchased 1.5 million shares of its inventory for a complete funding of $3.7 billion. Share buybacks would allow AZO to generate extra shareholder worth.

AZO’s trailing-12-month gross revenue margin of 51.96% is 46.6% greater than the 35.45% {industry} common. Likewise, the inventory’s trailing-12-month EBITDA margin and internet revenue margin of twenty-two.49% and 14.48% are considerably greater than the {industry} averages of 11.01 and 4.40%, respectively.

For the fourth quarter that ended August 26, 2023, AZO’s internet gross sales elevated 6.4% year-over-year to $5.69 billion, and its gross revenue grew 8.8% from the year-ago worth to $3 billion. Its working revenue rose 10.8% year-over-year to $1.22 billion. The corporate’s revenue earlier than taxes grew 7.1% from the prior-year quarter to $1.11 billion.

Moreover, the corporate’s internet revenue rose 6.8% from the year-ago worth to $864.84 million, and its internet revenue per share got here in at $46.46, a rise of 14.7% year-over-year.

Analysts count on AZO’s income for the fiscal 2024 first quarter (ending November 2023) to extend by 5.3% year-over-year to $4.19 billion. The consensus EPS estimate of $30.96 for the present quarter displays a 12.8% year-over-year enchancment. Furthermore, the corporate has topped the consensus EPS estimates in all 4 trailing quarters, which is spectacular.

Additional, the corporate’s income and EPS for the fiscal yr (ending August 2024) are anticipated to develop 7.3% and 12.8% year-over-year to $18.73 billion and $149.31, respectively.

Over the previous six months, AZO’s inventory has surged 7.3% to shut the final buying and selling session at $2,540.90. Additionally, the inventory has gained 21% over the previous yr.

AZO’s sturdy fundamentals are mirrored in its POWR Rankings. The inventory has an total B score, equating to a Purchase in our proprietary score system.

AZO has an A grade for High quality and a B for Sentiment. It’s ranked #28 out of 60 shares within the A-rated Auto Components {industry}.

To entry extra POWR Rankings of AZO for Momentum, Stability, Worth, and Development, click on right here.

Inventory #1: Modine Manufacturing Firm (MOD)

MOD presents engineered warmth switch methods and heat-transfer elements to be used in on- and off-highway authentic gear producer (OEM) vehicular functions. The corporate operates by way of the Local weather Options and Efficiency Applied sciences segments.

On September 6, MOD signed a definitive settlement to promote three German-based Modine companies positioned in Neuenkirchen, Pliezhausen, and Wackersdorf to associates of Regent LP. The sale of those companies aligns with the corporate’s technique to focus its sources on high-margin applied sciences with stable development drivers.

On August 15, MOD launched a brand new electrical infrared product line – the MEL Collection. This high-wattage, commercial-grade electrical infrared heater presents power effectivity, quick heat-up occasions, and flexibility for varied functions, together with outside patios and industrial areas. This collection is UL-certified for residential outside and industrial use, with enter voltages starting from 120V to 480V.

“The MEL Collection gives our prospects with a low-emissions heating product that can be utilized in a variety of functions. We’re excited so as to add this new product to our rising line of electrical heating options. Our workforce is dedicated to providing merchandise that help Modine’s goal of engineering a cleaner and more healthy world,” stated Jon Schlemmer, Vice President and Normal Supervisor of Heating Enterprise at MOD.

By way of the trailing-12-month EBIT margin, MOD’s 8.09% is 9% greater than the 7.42% {industry} common. Furthermore, the inventory’s trailing-12-month internet revenue margin and ROCE of seven.72% and 34% are greater than the respective {industry} averages of 4.40% and 11.17%.

MOD’s internet gross sales elevated 15% year-over-year to $622.40 million for the second quarter that ended June 30, 2023. Its gross revenue rose 53.4% year-over-year to $127.90 million. Its working revenue rose 159.8% from the year-ago worth to $66.50 million. The corporate’s adjusted EBITDA was $80.40 million, a rise of 90.5% year-over-year.

As well as, internet earnings attributable to MOD grew 213.3% year-over-year to $44.80 million. The corporate’s adjusted earnings per share elevated 165.6% from the prior yr’s quarter to $0.85.

Analysts count on MOD’s income and EPS for the fiscal yr (ending March 2024) to extend 9.2% and 48.1% year-over-year to $2.51 billion and $2.89. Moreover, the corporate has surpassed the consensus EPS estimates in every of the trailing 4 quarters.

The inventory has gained 124.1% year-to-date and 234.4% over the previous yr to shut the final buying and selling session at $45.07.

MOD’s POWR Rankings mirror its strong outlook. The inventory has an total score of A, which interprets to a Robust Purchase in our proprietary score system.

The inventory has a B grade for Development, Sentiment, and High quality. It’s ranked #15 in the identical {industry}.

Along with the POWR Rankings I’ve simply highlighted, you’ll be able to see MOD’s scores for Stability, Worth, and Momentum right here.

What To Do Subsequent?

Get your arms on this particular report with 3 low priced firms with super upside potential even in immediately’s risky markets:

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AZO shares had been unchanged in premarket buying and selling Thursday. 12 months-to-date, AZO has gained 3.03%, versus a 12.64% rise within the benchmark S&P 500 index throughout the identical interval.

In regards to the Creator: Mangeet Kaur Bouns

Mangeet’s eager curiosity within the inventory market led her to turn out to be an funding researcher and monetary journalist. Utilizing her basic method to analyzing shares, Mangeet’s seems to assist retail buyers perceive the underlying components earlier than making funding selections.


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