Rapid technological advancements and introduction of electric vehicles is expected to drive the growth of the auto industry. So, I think it might be ideal to buy Advance Auto Parts, Inc. (AAP) and Allison Transmission Holdings, Inc. (ALSN), considering their strong fundamentals.
While the automotive industry as a whole has continued to struggle, the consumer Electric Vehicle (EV) market, including Plug-in Hybrid Electric Vehicles (PHEVs) has delivered a stellar performance. This year, electric vehicle sales is expected to reach a growth rate of 25.2% year-over-year. Furthermore, the consumer EV market in 2023 will be 3.5X the size of the market in 2020.
Furthermore, lucrative government initiatives, rapid technological advancements, and a shift of focus on car accessories should drive the growth of the auto parts industry in the coming years. According to Research and Markets, the motor vehicle parts market is projected to grow at 7.9% until 2026.
Take a look at the stocks mentioned above:
Advance Auto Parts, Inc. (AAP)
AAP provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks.
AAP’s forward EV/Sales of 0.98x is 12.3% lower than the industry average of 1.12x. Its forward P/S multiple of 0.65 is 22.8% lower than the industry average of 0.84.
Its trailing-12-month gross profit margin of 44.51% is 26.6% higher than the 35.16% industry average. Its trailing-12-month net income margin of 4.50% is marginally higher than the 4.47% industry average.
AAP pays $6 annually as dividends which translates to a yield of 4.78% at the current price. Its 4-year average dividend yield is 1.30%. Its dividend has grown at a CAGR of 221.8% over the past three years.
During the fiscal fourth quarter ended December 31, 2022, AAP’s net sales increased 3.2% year-over-year to $2.47 billion. Its net income increased 30.6% year-over-year to $106.70 million. Its earnings per common share increased 37.7% year-over-year to $1.79.
AAP’s revenue is expected to increase 1.8% year-over-year to $3.43 billion for the fiscal first quarter ended march 2023. The company’s EPS for the same quarter is expected to come to $2.61.
Shares of AAP have gained 4% over the past month to close the last trading session at $125.52.
AAP’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a B grade for Growth, Quality, and Value. It is ranked #28 out of 60 in the A-rated Auto Parts industry.
Beyond what is stated above, we’ve also rated AAP for Sentiment, Stability, and Momentum. Get all AAP ratings here.
Allison Transmission Holdings, Inc. (ALSN)
ALSN designs, manufactures, and sells commercial and defense fully automatic transmissions for medium-and heavy-duty commercial vehicles, and medium-and heavy-tactical U.S. defense vehicles worldwide.
On April 25, ALSN, through its partnership with Foton, an international commercial vehicle manufacturer headquartered in Beijing, China, is providing the propulsion solution for 400 Foton AUV compressed natural gas buses being exported to Nuevo Leon, Mexico, to aid in the state’s plan to modernize public transportation. In China last year, ALSN realized double digit growth in export bus sales.
ALSN’s forward EV/EBITDA of 6.22x is 40.2% lower than the industry average of 10.40x. Its forward EV/EBIT of 7.44 is 48.8% lower than the industry average of 14.54.
Its trailing-12-month gross profit ratio of 47.23% is 57.4% higher than the 30.01% industry average. Its trailing-12-month net income margin of 20.19% is 214.4% higher than the 6.42% industry average.
On May 3, ALSN declared a cash dividend of $0.23 per share on the Company’s common stock for the second quarter of 2023. Payment will be made on May 31, 2023, to stockholders of record at the close of business on May 15, 2023.
ALSN pays $0.92 annually as dividends which translates to a yield of 1.91% at the current price. Its 4-year average dividend yield is 1.78%. Its dividend has grown at a CAGR of 12.8% over the past three years.
ALSN’s net sales increased 9.5% year-over-year to $741 million in the fiscal first quarter that ended March 31, 2023. Its net income increased 31.8% year-over-year to $170 million and earnings per share attributable to common stockholders increased 42.3% year-over-year to $1.85.
ALSN’s revenue is expected to increase 10.5% year-over-year to $733.64 million for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to increase 28.7% year-over-year to $1.62.
The stock has gained 28.5% over the past nine months to close the last trading session at $48.16.
ALSN’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system.
ALSN has an A grade for Quality. It is ranked #15 in the same industry.
Click here to see the additional POWR Ratings for ALSN (Sentiment, Growth, Value, Momentum, and Stability).
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AAP shares were trading at $125.83 per share on Wednesday morning, up $0.31 (+0.25%). Year-to-date, AAP has declined -13.35%, versus a 8.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor’s degree in finance and marketing and is pursuing the CFA program.
Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities. More…