Weekly unemployment claims are at 351,000 and the national unemployment rate is at 8.3% which continues to help new and used auto part retailers. Although the unemployment rate has dropped for five consecutive months consumers are still attempting to cut back on big ticket items. Rather than going out and buying a brand new vehicle some are keeping what they have and fixing it up.
The average age of automobiles on the road in the United States in 2011 was 10.8 years. This number has steadily been on the rise since the housing market top in the mid 2000s. It is no longer the case that American families look to buy a new vehicle every two to three years. In fact, many Americans families are taking every necessary step to keep their “paid off” vehicle on the road. Rather than adding another bill to the monthly stack some consumers are willing to upgrade parts and accessories on an older vehicle.
The companies that are greatly benefitting from this trend are both new and used auto part retailers. One of the largest used auto part retailers in the United States, LKQ Corp, reported earnings on Thursday, February 23rd. For the first time in the company’s history $3 billion in revenue was achieved. The auto part retailer also saw “double-digit total organic revenue growth” which has impressed investors in 2012. Year to date LKQ Corp (LKQX) is up 8.38% and the stock has moved higher by over 30% in the 365 days.
This is not the only company that has seen increased revenues as vehicles get older. AutoZone, Advance Auto Parts and O’Reilly Automotive have all exceeded earnings expectations in the last three months. Early in February both Advance Auto Parts and O’Reilly blew out earnings and Autozone is set to report on February 28th. All three of these companies have seen their stock prices move up by over 40% in the last year. During this same time period the S&P 500 is up 4.26%.
After the AutoZone (AZO) earnings report on February 28th it will be interesting to see how the entire sector trades on their respective stock exchanges. As the sector continues to improve companies are planning on expansion as they open new stores. During the “great recession” almost every major company in American halted expansion and growth plans but that is not the case in early 2012.
In the fourth quarter of 2011 Advance Auto Parts opened 19 stores. During the fiscal year of 2011 the company opened 104 stores to bring the grand total to 3,662. Prior to the recent economic recovery some national corporations were opening a total number of stores in the single digits for an entire year. The Advance Auto Parts stock (AAP) is up 122% since the stock market bottom during March of 2009. This extra stock valuation has given the company an opportunity to grow stores and jobs. Finding stocks that can double in one year is the objective for many but a double in under three years is impressive as well.
The summer driving season is just around the corner and some cities throughout the United States are already seeing gas prices reach $4 a gallon. Some analysts have predicted that this would hurt any type of automotive stock but this has yet to happen with the auto parts industry. In fact, O’Reilly, Advance Auto Parts, AutoZone and LKQ Corp have hit all time highs in February of 2012. A less than stellar earnings report for AutoZone in late February 2012 could hurt the sector but all signs are pointing towards an earnings beat. Even if the company beats earnings it may have to revise future earnings higher to see the stock break into new all time high territory.