Advance Auto Parts
is climbing on Tuesday, thanks to an upgrade. JPMorgan argues that the auto-parts retailer is a buy for a very relatable reason: 2021 has to look better than this year.
Analyst Christopher Horvers upgraded Advance Auto Parts stock (ticker: AAP) to Overweight from Neutral, and lifted his price target to $190 from $183. He writes that Covid-19 adversely affected Advance Auto than
(ORLY), given its concentration of stores in hard-hit areas in the Northeast, with comparable sales trailing those of peers in the spring months. Therefore, it may bounce back more easily as the threat of the pandemic starts to recede.
Of course, we’re not quite there yet, and many people are still working from home. That’s reduced the number of miles people need to commute, but Horvers notes that this hasn’t been much of a negative for the auto-parts retailers, as the typical DIY (do it yourself) and DIFM (do it for me) customers are more likely to still be traveling to work.
Add to that the fact that people are generally avoiding mass transit mid-pandemic, and can’t spend their money on other entertainment options, and there are even more tailwinds for DIY.
Horvers is also optimistic about the weather: The winter of 2020 was the third warmest winter since 1950, and with a lack of snow in the Northwest, Advance Auto was again hit harder than rivals. Yet he notes that forecasts call for this year are slightly more supportive. “While a ‘great winter’ is not expected, it’s still positive compared to the warm/snowless 2020 season while the factors noted above continue to support the industry.”
Advance Auto stock is up 2.5% to $159.75 in recent trading, although the shares have slid 2.7% in 2020, hurt by the factors that Horvers outlines above.
Peer AutoZone reported better-than-expected earnings last month.
Write to Teresa Rivas at firstname.lastname@example.org