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Advance Auto Parts (AAP) Purchases DieHard Brand for $200M

Zacks Equity Research

Advance Auto Parts, Inc. AAP recently announced that it purchased the DieHard car battery brand from Transform Holdco LLC, the parent company of Kmart and Sears, for a cash consideration of $200 million.

Following the acquisition, Advance Auto Parts will have the right to sell DieHard batteries and extend the DieHard brand to other automotive and vehicle categories.

Moreover, the acquisition of DieHard is expected to differentiate Advance Auto Parts, drive increased DIY customer traffic, create a unique value proposition for its expert customers and independent Carquest partners, and drive significant long-term shareholder value. It will also allow the company to build a leadership position in the critical battery category. Advance Auto Parts can also leverage the brand in other business categories such as marine and recreational vehicles.

Per the supply agreement, Transformco will still develop and sell DieHard batteries in its Sear stores. The deal also includes an exclusive royalty-free and perpetual license, which would give Transformco permission to develop, market and sell DieHard items outside automotive categories. Moreover, the deal offers Sears and Kmart with much-needed cash as it has been witnessing revenue decline and vanishing banner stores.

Shares of Advance Auto Parts have underperformed the industry it belongs to over the past year. Its shares have appreciated 3% compared with the industry’s growth of 30.1%.

The company anticipates consolidated revenues of $9,650-$9,750 million for 2019. Further, adjusted operating income margin is projected at 8-8.2% and capital expenditure is estimated at $250-$300 million.

Zacks Rank & Stocks to Consider

Currently, Advance Auto Parts has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Auto-Tires-Trucks sector are Weichai Power Co. WEICY, Spartan Motors, Inc SPAR and SPX Corporation SPXC. While Weichai Power flaunts a Zacks Rank #1 (Strong Buy) at present, Spartan Motors and SPX carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Weichai Power has a projected earnings growth rate of 6.1% for the current year. Its shares have gained 80.3% over the past year.

Spartan Motors has an estimated earnings growth rate of 85.4% for the ongoing year. The company’s shares have surged 152.1% in a year.

SPX has an expected earnings growth rate of 23.6% for 2019. The company’s shares have surged 90.3% in the past year.

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