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Advance Auto Parts A 'Fixer Upper' Story At An Attractive Entry Point

Advance Auto Parts, Inc. (NYSE: AAP) has lost nearly 40 percent since the start of 2017 and has now become a compelling investment, at least according to analysts at Jefferies.

Jefferies' Bret Jordan upgraded Advance Auto Parts' stock from Hold to Buy with a price target lowered from $150 to $130 as the company's risk/reward profile is now attractive.

Shares of the auto parts retailer are now trading at a 12.x multiple on forward year P/E, which is below the company's five-year average of 15.9x and its 10-year average of 14.2x, the analyst noted. As such, the current valuation provides investors with a an attractive entry point for a "fixer upper story" given the company's significant long-term margin potential coming from improving operating efficiencies and not necessarily growing sales.

Advance Auto Parts has targeted $750 million in cost savings over a four-year period, which will eliminate its reputation of boasting a "fat overhead" along with an inefficient supply chain, Jordan continued. Over the longer term, the company can boost its EBIT margins to a range of 13 to 14 percent which implies an earnings per share above $11.

Also working in Advance Auto Parts' favor is its 58 percent exposure to the commercial market positions it very well to offset and pressure in the do-it-yourself market.

Bottom line, while investors should continue to expect near-term pain, the longer-term story is attractive at current levels.

Related Links:

When The Bellwether Doesn't Ring: Here's Why The Auto Parts Plunge Didn't Affect Other Sectors

Auto Parts Stocks Are Getting Crushed Thanks To O'Reilly's Guidance Cut

Latest Ratings for AAP

Jul 2017

Bank of America

Downgrades

Neutral

Underperform

Jul 2017

Jefferies

Upgrades

Hold

Buy

Mar 2017

Wedbush

Reiterates

Outperform

View More Analyst Ratings for AAP
View the Latest Analyst Ratings

See more from Benzinga

© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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