On Nov 29, 2013, we maintained our Neutral recommendation on Standard Motor Products Inc. (SMP). The reiteration was based on improving earnings, strong brand recognition, recent acquisitions and savings through optimization of product costs, which offset the headwinds.
Why the Reiteration?
Standard Motor reported an 8.2% rise in adjusted earnings per share to 79 cents in the third quarter of 2013 from 73 cents in the year-ago quarter. Earnings per share beat the Zacks Consensus Estimate of 76 cents.
Standard Motor enjoys a strong competitive advantage due to its brand recognition and sizeable customer base. Moreover, the company is expanding its business through acquisitions.
Further, Standard Motor is not significantly exposed to the cyclical nature of the automotive industry since it is focused on the aftermarket. Demand for repair products are expected to rise, thanks to the increasing number of vehicle models with different features, increased complexity in modern vehicles, expansion of the used vehicles market and an increase in the average auto age in the U.S.
However, rising demand for fuel efficient vehicles or electric vehicles can mar aftermarket sales and hamper the long-term performance of Standard Motor. Moreover, the company is adversely affected by the price competition in the market.
Standard Motor’s sales are mostly concentrated on its major customers like O'Reilly Automotive Inc. (ORLY), NAPA Auto Parts and Advance Auto Parts Inc. (AAP). The top 5 customers of the company represented about 64% of consolidated net sales in 2012.Thus, the loss of any key customer could significantly affect the company’s results.
Other Stocks to Consider
Standard Motor currently carries a Zacks Rank #2 (Buy). Motorcar Parts of America Inc. (MPAA), which carries a Zacks Rank #1 (Strong Buy), is another stock worth considering in the same industry.