Auto Stocks

LKQ Corporation – June 2018 $LKQ

Company Profile (excerpt from Reuters): LKQ Corporation (LKQ), incorporated on February 13, 1998, is a distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, as well as specialty vehicle products and accessories, and automotive glass products. The Company’s segments include Wholesale-North America; Europe; Specialty, and Self Service. The Company offers its customers a range of replacement systems, components, equipment and parts to repair and accessorize automobiles, trucks, and recreational and performance vehicles. The Company distributes a range of products to collision and mechanical repair shops, including aftermarket collision and mechanical products, recycled collision and mechanical products, refurbished collision products, such as wheels, bumper covers and lights, and remanufactured engines. The Company also has operations in North America, Europe and Taiwan.

LKQ Chart

LKQ data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of LKQ – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $10,062,497,459 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.74 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 211.82% Pass
6. Moderate PEmg Ratio PEmg < 20 18.50 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.29 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.24 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.76
MG Growth Estimate 11.46%
MG Value $55.18
Opinion Undervalued
MG Grade B-
MG Value based on 3% Growth $25.47
MG Value based on 0% Growth $14.93
Market Implied Growth Rate 5.00%
Current Price $32.49
% of Intrinsic Value 58.88%

LKQ Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of dividends. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1 in 2014 to an estimated $1.76 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 5% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into LKQ Corporation revealed the company was trading above its Graham Number of $25.93. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.5, which was above the industry average of 17.9. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-3.78.

LKQ Corporation performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$3.78
Graham Number $25.93
PEmg 18.50
Current Ratio 2.74
PB Ratio 2.29
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $4,039,143,000
Total Current Liabilities $1,474,788,000
Long-Term Debt $3,170,788,000
Total Assets $9,636,178,000
Intangible Assets $4,313,002,000
Total Liabilities $5,217,197,000
Shares Outstanding (Diluted Average) 311,347,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.20
Dec2017 $1.71
Dec2016 $1.50
Dec2015 $1.38
Dec2014 $1.25
Dec2013 $1.02
Dec2012 $0.87
Dec2011 $0.71
Dec2010 $0.58
Dec2009 $0.45
Dec2008 $0.36
Dec2007 $0.28
Dec2006 $0.20
Dec2005 $0.16
Dec2004 $0.12
Dec2003 $0.10
Dec2002 -$0.28
Dec2001 $0.03
Dec2000 -$0.01

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.76
Dec2017 $1.48
Dec2016 $1.31
Dec2015 $1.16
Dec2014 $1.00
Dec2013 $0.82
Dec2012 $0.68
Dec2011 $0.55
Dec2010 $0.43
Dec2009 $0.34
Dec2008 $0.26
Dec2007 $0.20
Dec2006 $0.13
Dec2005 $0.07
Dec2004 $0.01
Dec2003 -$0.04
Dec2002 -$0.09

Recommended Reading:

Other ModernGraham posts about the company

LKQ Corporation Valuation – Initial Coverage $LKQ

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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