- Goldman Sachs is adding Advance Auto Parts (NYSE:AAP) to their Conviction Buy list (in place of PetSmart), reflecting the stock's attractive risk/reward profile. The market is dismissing the potential for meaningful earnings growth at Advance, valuing the stock well below the hardlines sector average as sales trends are closing in on cyclical troughs. The stock has begun to shrug off bad news, tracking flattish in the face of downward guidance last week. Firm believes that store-level execution remains intact, and looking 3-6 months ahead see easing sales comparisons, easing gas price compares, and further expense reduction, as well as unit growth and operating margin expansion potential.
Same-store sales comparisons begin to ease in the fourth quarter, as gas price comparisons begin to moderate as well. Note that expense dollars have been well controlled, underlying gross margin expansion continued in an otherwise soft second quarter, and working capital remains in fine shape, limiting downside risk.
Firm's 12-month price target of $35 is based on a two-tier framework utilizing 1) relative P/E valuation across multiple earnings scenarios, and 2) DCF valuation.
Notablecalls: Not actionable but good to know category.
Same-store sales comparisons begin to ease in the fourth quarter, as gas price comparisons begin to moderate as well. Note that expense dollars have been well controlled, underlying gross margin expansion continued in an otherwise soft second quarter, and working capital remains in fine shape, limiting downside risk.
Firm's 12-month price target of $35 is based on a two-tier framework utilizing 1) relative P/E valuation across multiple earnings scenarios, and 2) DCF valuation.
Notablecalls: Not actionable but good to know category.
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