The following statistics can make you wonder why would anyone would want to drive on their vacation. AAA stated in 2015 that, “U.S. drivers reported making an average of 2.1 driving trips per day, covering an average of 29.8 miles and spending an average of 48.4 minutes driving, which translates to an average of 763 trips, 10,874 miles, and 294 hours of driving annually.” The Federal Highway Administration notes that these averages have increased consistently every year since 2013, and in 2018 travel in the U.S will reach an all time high of 3,188,711 million vehicle miles per year.
This summer, many people are looking towards the all-American road trip to satisfy their vacation needs. A recent study posted by ISPOS in June of 2018 states that 72% of Americans plan to go on vacation in the next 12 months. Vacationers are looking to skip the security checkpoint lines and excessive baggage fees with MMGY Global reporting that domestic vacations account for 85 percent of American getaways, with 39% of those being road trips. With these numbers, Americans better make sure their cars can withstand the journey.
For travelers looking for convenient and low cost vacations this season, a road trip is the perfect choice.
Recent AAA roadside data shows that vehicles over 10 years old are twice as likely to break down and four times more likely to be towed in comparison to younger vehicles. We have listed three automotive companies below that, we believe, could fuel your vehicles in addition to your investments.
The foundation of our recommendations is to identify companies that perform best and worst on the collective basis of value, growth, EPS revisions, profitability, and LT momentum. The CressCap systematic trading model gathers data daily on 6,500 companies globally and assigns academic grades (A - F) for each financial metric. These grades are scored relative to its region/sector.
Advance Auto Parts, Inc. (AAP-US)
The first company on our list is Advance Auto Parts. This company is a leading automotive aftermarket parts provider that serves both professional installer and do-it-yourself customers. The company offers a selection of brand name and private label automotive replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles and light and heavy duty trucks. According to the its first quarter 2018 results, the company experienced first quarter net sales of $2.9 billion along with a gross profit of $1.3 billion. Additionally, its operating income increased 10.3% to $198.2 million and adjusted operating income increased 9.3% to $224.1 million. CEO Tom Greco stated in the same report that the company’s first quarter performance reinforced its commitment to driving increased value for shareholders.
During the first quarter of fiscal 2018, the sales of appearance chemicals and accessories was down for the company as a result of, “unusually cold temperatures and above average levels of precipitation in March and April”. Tom Greco continued on to say that, “spring-related demand bounced back nicely in May and we expect improved top line sales in Q2”. With Americans eager to get on the road when the weather improves, this is a perfect time to invest in the company.
This stock is one to watch for with an A- CressCap sector grade along with impressive financial metrics. This stock’s YTD performance is up 41.27%. The company’s value metrics are on par with the sector holding a Price/Sales ratio of 1.10x vs. sector 1.35x. The momentum metric stands out amongst its competitors in the consumer discretionary sector. The mid and long term price momentum outcomes are favorable compared to the sector with an A- grade. The mid-term price momentum is 25.44% vs. sector 6.06% and the long term price momentum is an impressive 48.97% compared to sector 15.90%. Profitability metrics for this stock also look favorable with a B+ grade for its gross profit margin at 44.12% vs. sector 33.93%, and a B grade for ROI with the stock at 11.30% compared to sector 8.64%.
AutoZone, Inc. (AZO-US)
AutoZone is the nation's leading retailer and a leading distributor of automotive replacement parts and accessories with more than 6,000 stores in the US, Mexico, Brazil and Puerto Rico. Each store carries an extensive line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured hard parts, maintenance items and accessories. This Tennessee-based company stated in its 3rd quarter 2018 earnings that it recognized net sales of $2.7 billion, an increase of 1.6% from the third quarter of fiscal 2017. Further, both the net income and diluted EPS for the quarter increased, with net income increasing 10.6% over the same period last year to $366.7 million and the latter increasing 17.3% to $13.42 per share.
In the company’s third quarter 2018 results, CEO William Rhodes stated he had confidence in the company’s performance moving into the summer months. He stated that, “the northern Mid-Atlantic and Midwestern geographies did not excel as expected after the harsher winter. However… [over] the last two weeks when most of the country entered a dry hot weather pattern, our sales improved materially and in the geographies and the categories that we expected”.
The outlook on this company is favorable, with profitability, EPS revisions and value metrics producing strong CressCap grades of A, B+ and B respectively. AutoZone’s profitability can be seen in the ROI, given an A+ grade at 37.73% vs. sector 8.64% and EBIT margin at 19.10% compared to sector 9.35% accompanied by an A grade. The CF/ROI ratio at 46.27x compared to sector 15.66x suggests stock is very undervalued. The stocks current P/E ratio is 15.59x vs. the sector 18.92x, given a B+ CressCap grade. Its EPS revisions continue to be adjusted higher for FY1 and FY2 showing us that this stock has good momentum. This year, it had a market cap change of 27.83% relative to a sector change of 18.06%. In our opinion, the stock looks good for quant, technical, and fundamental criteria and it should be viewed as a place to put your money during the summer season.
O’Reilly Automotive, Inc. (ORLY-US)
O'Reilly Automotive, Inc. is the last company on our list. This Missouri-based company is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States, serving both professional service providers and do-it-yourself customers. The company saw sales for the first quarter of 2018 increase 6%, to $2.28 billion from $2.16 billion for the same period one year ago. Gross profit for the first quarter increased to $1.20 billion from $1.13 billion from the same 2017 period. The company has had a good 2018 thus far, with its performance up 19.26% YTD.
In addition to O’Reilly Automotive reporting both a sales and gross profit increase in the first quarter, their metrics also show tremendous upside potential. Notably, the company’s profitability stands out reflected by an A ranking. This ranking is backed by the stock’s ROE at an impressive 99.45% compared to that of the sector at 13.33%, along with the stock receiving A+ and A grades in ROI and EBIT margin respectively. The growth of this stock looks promising, with its 2 year forward EPS growth rate at 36.29% vs. a sector 25.99%. Long term momentum for the stock is strong, with an A- CressCap rank, at 45.64% compared to a sector average 15.90%. In our opinion, the stock looks good for quant, technical, and fundamental criteria and it should be viewed as a place to put your money during the summer season.
Written By: Steven Cress (steven.cress@cresscap.com) and Alison Geary (alison.geary@cresscap.com)
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