Advance Auto Parts Jumps After Turnaround Plan Accelerates

  • Analysts at Raymond James and Susquehanna upgrade stock
  • Rally helps boost shares of other auto-part retailers

Advance Auto Parts Inc. jumped the most in more than three years after third-quarter earnings beat estimates, signaling that the retailer’s comeback plan is gaining momentum.

Earnings were $1.73 a share in the period, excluding some items, the Roanoke, Virginia-based chain said on Monday. Analysts had estimated $1.72 for the company, which operates more than 5,000 stores.

The results prompted Raymond James and Susquehanna Financial Group to upgrade Advance Auto Parts and helped boost other automotive stocks, including O’Reilly Automotive Inc. and AutoZone Inc. Advance Auto management has provided a blueprint for increasing earnings over the next five years, Raymond James’s Dan Wewer said. This could support a rebound in the company’s stock price, he said.

“Admittedly, the rating upgrade is somewhat of a ‘hope trade,’” he said in a report.

The shares surged as much as 16 percent in New York, the biggest intraday jump since October 2013. It also was the largest gain of any stock in the Standard & Poor’s 500 Index on Tuesday. The stock had been down 5 percent this year through Monday.

While same-store sales declined 1 percent last quarter, that was better than the 3.5 percent decline predicted by analysts.

Starboard’s Pressure

Advance Auto has been targeted by activist investor Starboard Value since September 2015, when the hedge fund disclosed a 3.7 percent stake in the retailer. The two sides forged an agreement in November 2015, bringing the investment firm’s chief executive officer, Jeffrey Smith, onto Advance Auto’s board. Starboard announced in a filing earlier this week that it had boosted its stake in the company.

The retailer also brought on a new CEO, Tom Greco, and that’s giving investors reason for optimism, said Susquehanna’s Ali Faghri. Greco’s distribution background at PepsiCo Inc.’s Frito-Lay should help the company overcome supply-chain challenges, he said in a report.

“The new executive team is an important step toward instilling investor confidence,” Faghri said.

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