Friday, April 10, 2009

* Auto Parts Retailers Rallying

As consumers delay in purchasing new cars, they are forced to perform additional maintenance on their existing cars. The primary beneficiary of this phenomenon and one of the few industries experiencing success in this downturn are retail auto parts companies such as Autozone (AZO). AZO is the nation's leading specialty retailer and a leading distributor of automotive replacement parts and accessories, focusing primarily on do-it-yourself consumers.

The company's results reported on Mar. 3, 2009 showed quarterly sales up 8% to $1.45 billion and earnings up 21%, to $2.03 a share, which beat analysts' forecasts. As one would expect, the operating results carried over to the stock price. Shareholders of AZO have benefited greatly during the last 12 months having seen its stock price climb from $120 in April 2008 to over $165 on April 1, 2009.

It is no longer just guys dressed in starter jackets and DeWalt hats that are frequenting stores, but AZO now serve a much more diverse customers base. In Kenosha, WI, a Jaguar pulls up in the parking lot - "Check that out," says an AZO regional manager who's visiting for the day. "You don't see that too often" - and the driver walks into the store to ask how to buy spark plugs. A few minutes later, a young yuppie-ish couple in Abercrombie & Fitch sweatpants park their Volkswagen Jetta in the lot and ask an employee to help them find the battery. Can AZO's rise continue?

Analyst John Lawrence of the investment firm Morgan Keegan believes so. Favorable "industry tailwinds should continue, with sharp declines in new-car sales and a record number of aged vehicles on the road." That and the trend of closing car dealerships, he adds, bodes well for higher demand in the commercial repair shops. AZO is well positioned to benefit from an improving sales trend and it has the resources and strategy to gain market share from its competitors. So what's the problem with AZO?

Unfortunately for income investors, AZO doesn't pay a dividend. That's not to say we can't participate in this rally, we just need to find the right stock. One that might fit the bill is Genuine Parts Co. (GPC) - a leading wholesale distributor of automotive replacement parts.

GPC serves about 5,800 NAPA Auto Parts stores (retail), including about 1,100 company-owned stores. In addition, it sells directly to garages, service stations, car and truck dealers, fleet operators, leasing companies, bus and truck lines, etc. Unlike AZO, GPC is a Dividend Achiever that has increased its dividend for the last 53 consecutive years. Its stock currently yields over 5% and was last reviewed on March 16th. GPC plans to release First Quarter Earnings on April 16, 2009 and management will conduct a conference call on this date at 11:00 a.m. Eastern time.

Full Disclosure: No position in the aforementioned stocks.

- AutoZone Is in the Fast Lane
- AutoZone zooms

Tags: [AZO] [GPC]