Investors in Advance Auto Parts, Inc. (NYSE:AAP) had a good week, as its shares rose 4.0% to close at US$140 following the release of its full-year results. The result was positive overall - although revenues of US$9.7b were in line with what analysts predicted, Advance Auto Parts surprised by delivering a statutory profit of US$6.84 per share, modestly greater than expected. This is an important time for investors, as they can track a company's performance in its report, look at what top analysts are forecasting for next year, and see if there has been any change to expectations for the business. So we collected the latest post-earnings statutory consensus estimates to see what could be in store for next year.
Following the latest results, Advance Auto Parts's 21 analysts are now forecasting revenues of US$9.95b in 2020. This would be a reasonable 2.5% improvement in sales compared to the last 12 months. Statutory earnings per share are expected to bounce 31% to US$9.02. In the lead-up to this report, analysts had been modelling revenues of US$9.93b and earnings per share (EPS) of US$8.79 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at US$165, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Advance Auto Parts, with the most bullish analyst valuing it at US$190 and the most bearish at US$126 per share. Analysts definitely have varying views on the business, but the spread of estimates is not wide enough in our view to suggest that extreme outcomes could await Advance Auto Parts shareholders.
One way to get more context on these forecasts is to look at how they compare to both past performance, and how other companies in the same industry are performing. For example, we noticed that Advance Auto Parts's rate of growth is expected to accelerate meaningfully, with revenues forecast to grow at 2.5%, well above its historical decline of 0.6% a year over the past five years. Compare this against analyst estimates for the wider market, which suggest that (in aggregate) market revenues are expected to grow 5.8% next year. Although Advance Auto Parts's revenues are expected to improve, it seems that analysts are still bearish on the business, forecasting it to grow slower than the wider market.
The Bottom Line
The biggest takeaway for us from these new estimates is that the consensus upgraded its earnings per share estimates, showing a clear improvement in sentiment around Advance Auto Parts's earnings potential next year. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Advance Auto Parts's revenues are expected to perform worse than the wider market. The consensus price target held steady at US$165, with the latest estimates not enough to have an impact on analysts' estimated valuations.
Still, the long-term prospects of the business are much more relevant than next year's earnings. We have estimates - from multiple Advance Auto Parts analysts - going out to 2022, and you can see them free on our platform here.
You can also view our analysis of Advance Auto Parts's balance sheet, and whether we think Advance Auto Parts is carrying too much debt, for free on our platform here.
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