DETROIT (AP) -- Shares of auto parts retailers fell Tuesday after Los Angeles-based investment bank Wedbush initiated coverage of the sector with largely lukewarm opinions, saying auto parts companies will struggle to grow in the coming years.
Advance Auto Parts Inc. shares were 1 percent to $82.76 in midday trading, while AutoZone Inc. was down nearly 1 percent to $422.26. Genuine Parts Co. was down 1.4 percent to $78.81. Only shares of O'Reilly Automotive Inc. were up, rising 38 cents to $129.49.
The broader markets were lower as lawmakers continued to work on a deal to avoid a U.S. default and reopen the government.
Wedbush analyst Seth Basham said changes in demographics and driving habits and the increasing complexity of parts spell trouble for auto parts retailers. Fewer young people are driving and repairing their own cars, and growing U.S. sales of new cars over the past few years means there will be fewer cars needing repairs. On the other hand, Basham said, there is little threat from Internet retailers and discount stores in such a service- and convenience-oriented industry.
Basham gave Advance Auto Parts an "Underperform" rating and set his price target at $70, citing falling market share and employee dissatisfaction. Basham said Advance has lower operating margins than O'Reilly and AutoZone, and needs to cut staff without hurting service, which will be difficult.
Basham gave a "Neutral" rating to AutoZone and set a $440 target price. The company suffered from lower market share and unfavorable weather in its just-completed 2013 fiscal year, but still managed to grow earnings per share 16 percent.
"While the declines should not ring investors' alarm bells, in our view, they point to a highly efficient mature company in a retail segment struggling for growth," Basham wrote in a research note.
Basham also gave a "Neutral" rating to Genuine Parts, along with an $84 price target. Genuine Parts is well positioned, Basham said, since its auto segment outperformed peers in the most recent quarter and it's now focusing on growing its electrical and industrial segments in Asia. Basham also pointed out that Genuine Parts has consistently grown its dividend despite the recession. But he said Genuine distributes its NAPA parts through a lot of small, independent stores that are at risk from competition.
Basham said O'Reilly is the most attractive company in the segment, with a clear path to consistent store growth. He gave O'Reilly an "Outperform" rating and a $150 price target.
O'Reilly's stores are set up in less populous markets where their peers would typically not locate, Basham said, and they get healthy returns from both do-it-yourself customers and customers who want service done for them. The company also has a better parts distribution system and a motivated workforce, Basham said.