Logistical issues and intensified global chip shortage due to the geopolitical headwinds have challenged automobile manufacturing lately. Longer wait times for vehicle deliveries, higher loan costs due to the Federal Reserve’s policy tightening, and fears of a recession have further dampened the industry’s prospects.

However, substantial demand for auto components, driven by increased consumer interest in electric vehicles (EVs) amid inflated fuel prices and climate concerns and expansion of Original Equipment Manufacturers (OEM) inside the aftermarket value chain, should drive the industry’s growth.

Furthermore, digitalizing automotive component delivery sales and services is expected to aid the industry’s growth. Companies are shifting to digital platforms owing to a smoother customer experience. The global auto parts and accessories market is expected to grow at a 2.8% CAGR to $2.64 trillion by 2027. The aftermarket industry is expected to grow at a 3.8% CAGR to $529.88 billion by 2028.

Therefore, we think, investing in fundamentally sound auto parts stocks AutoZone, Inc. (AZO), O'Reilly Automotive, Inc. (ORLY), The Goodyear Tire & Rubber Company (GT), and Genuine Parts Company (GPC) could be wise now.

AutoZone, Inc. (AZO)

AZO is involved in retailing and distribution of automotive replacement parts and accessories. The company operates in three segments: Auto Parts Store; ALLDATA; and e-commerce. The company offers various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive parts, maintenance products, accessories, and non-automotive products.

On March 22, AZO announced that its Board of directors authorized the repurchase of an additional $2 billion of the company’s common stock as part of the ongoing share repurchase program. This is expected to increase earnings and the intrinsic value of its outstanding shares.

AZO’s net sales increased 5.9% year-over-year to $3.86 billion in the fiscal 2022 third quarter ended May 7, 2022. Its operating profit amounted to $2.17 billion, up 14% year-over-year. Its EBITDAR improved 9.6% year-over-year to $4.07 billion. The company’s earnings per share came in at $29.03, registering an increase of 9.6% from the prior-year period.

The consensus EPS estimate of $115.29 for the fiscal year 2022 represents a 21.1% improvement year-over-year. The consensus revenue estimate of $16.06 billion for the current year represents a 9.8% increase from the previous year. The company has an impressive earnings surprise history, as it has surpassed the consensus EPS estimates in each of the trailing four quarters.

AZO has gained 15.9% over the past six months and 38.6% over the past year to close the last trading session at $2,2259.18.

AZO’s POWR Ratings reflect this stable outlook. The company has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AZO is also rated A in Quality and B in Sentiment. Within the B-rated Auto Parts industry, it is ranked #17 of 68 stocks. Click here to see additional POWR Ratings for Growth, Value, Momentum, and Stability for AZO.

O'Reilly Automotive, Inc. (ORLY)

ORLY operates as a specialty retailer and supplier of automotive aftermarket parts, tools, supplies, equipment, and accessories. The company owns and operates more than 5,759 stores in the United States and 25 stores in Mexico and sells its products to do-it-yourself and professional service provider customers.

ORLY has been spending its free cash flow to repurchase shares. In the first four months of 2022, it has spent $880 million on share repurchases. This is expected to prolong the recent trend of its EPS growth exceeding its profit growth.

For the fiscal 2022 second quarter ended June 30, 2022, ORLY’s sales increased 5.9% year-over-year to $3.67 billion, and its gross profit improved 3.2% year-over-year to $1.88 billion. The company’s operating income rose 0.4% from the year-ago value to $798.55 million. In addition, its earnings per share came in at $8.78, up 5.4% year-over-year.

Analysts expect ORLY's revenue for the fiscal year 2022 (ending December 2022) to come in at $14.15 billion, representing a 6.1% rise from the last year. Also, Street expects the company's EPS for the current year to come in at $31.81, representing an increase of 2.3% year-over-year.

Over the past month, ORLY has gained 12% to close the last trading session at $731.59.

ORLY's POWR Ratings reflect a stable outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. It has a grade of A for Quality. In the B-rated Auto Parts industry, it is ranked #20 of 68 stocks.

Beyond what we’ve stated above, we have also given ORLY grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the ORLY ratings here.

The Goodyear Tire & Rubber Company (GT)

GT is a developer, manufacturer, marketer, and distributor of tires and rubber-related chemicals for various applications. The company operates through three regional segments: Americas; Europe, Middle East, and Africa (EMEA); and the Asia Pacific, with 57 manufacturing facilities in over 23 countries.

In July, GT joined hands with Lockheed Martin (LMT) to commercialize lunar mobility. It will help the company leverage the expertise it has gained during the Apollo mission to expand its horizons by providing tires for NASA’s Artemis program to live and work on the moon.

GT’s net sales increased 31% year-over-year to $5.21 billion in the second quarter ended June 30, 2022. The company's adjusted income before taxes rose 41.7% from the year-ago value to $187 million. Its adjusted net income came in at $131 million, up 65.8% year-over-year. Furthermore, its adjusted earnings per share grew 43.8% from the prior-year period to $0.46.

Analysts expect GT's revenue for the fiscal year 2022 (ending December 2022) to come in at $21.04 billion, representing a 20.4% rise from the last year. Also, Street expects the company's EPS for the current year to come in at $2.13, representing an increase of 2.1% year-over-year. The company has a good earnings surprise history since it exceeded analysts' EPS expectations for each of the trailing four quarters.

Over the past month, GT has gained 38.7% to close the last trading session at $15.19.

GT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our POWR Ratings system. GT has an A grade for Value and a B for Growth.

Among the 68 stocks in the same industry, GT is ranked #13. Click here to see the additional POWR Ratings for GT (Momentum, Stability, Sentiment, and Quality).

Genuine Parts Company (GPC)

GPC is a distributor of automotive replacement parts, industrial parts, and materials for hybrid and electric vehicles, trucks, SUVs, buses, motorcycles, farm vehicles, small engines, farm equipment, and heavy-duty equipment. The company operates in two segments: Automotive Parts Group and Industrial Parts Group. The company caters to both North America and Australia.

On April 13, 2022, GPC’s London-based automotive distribution company Alliance Automotive Group (AAG) acquired Lausan Group, a leading distributor of automotive aftermarket parts in Spain and Portugal.

The acquisition might help GPC expand its European automotive footprint while assisting Lausan in strengthening its position as a market-leader position by leveraging GPC’s European scale, purchasing expertise, and the roll-out of its NAPA brand across the region. GPT expects Lausan to generate annual revenue of approximately €115 million ($118 million).

GPC’s net sales for its fiscal 2022 second quarter ended June 30, 2022, increased 17.1% year-over-year to $5.60 billion. Its income before income taxes came in at $491.56 million for the quarter, up 82.3% from the prior-year period. While its adjusted net income increased 24% year-over-year to $313.09 million, its adjusted EPS grew 26.4% from the prior-year value to $2.20.

The company had $519.13 million in cash and cash equivalents as of June 30, 2022.

Analysts expect the company’s EPS to improve 15.2% year-over-year to $7.96 for the fiscal year 2022, ending December 31, 2022. The $21.53 billion consensus revenue estimate for the same fiscal year represents a 14.1% rise from the prior year. GPC has surpassed the consensus EPS estimates in each of the trailing four quarters.

Over the past month, GPC’s stock has gained 15.4% to close the last trading session at $158.10.

GPC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Quality, Stability, and Sentiment.

GPC is ranked #2 of 68 stocks in the same industry. Click here to see the additional ratings for GPC’s Value and Momentum.

AZO shares were trading at $2,257.65 per share on Monday morning, down $1.53 (-0.07%). Year-to-date, AZO has gained 7.69%, versus a -9.60% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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