Company Profile (excerpt from Reuters): Advance Auto Parts, Inc., incorporated on August 1, 2001, provides automotive aftermarket parts in North America, serving do-it-for-me (Professional) and do-it-yourself (DIY), customers. The Company’s stores and branches offer a selection of brand name, original equipment manufacturer (OEM) 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. The Company serves its Professional and DIY customers through various channels ranging from traditional brick and mortar store locations to self-serving e-commerce sites. As of December 31, 2016, the Company operated 5,062 total stores and 127 branches primarily under the trade names Advance Auto Parts, Autopart International, Carquest and Worldpac. As of December 31, 2016, the Company’s Advance Auto Parts operations consisted of three geographic divisions, which included the operations of the stores operating under the Advance Auto Parts, Carquest and Autopart International trade names. The Company’s e-commerce platforms, primarily consisting of its online Websites and Professional ordering platforms, are part of its integrated operating approach of serving its Professional and DIY customers. The Company’s online Websites allow its DIY customers to pick up merchandise at a store or have their purchases shipped directly to them. The majority of the Company’s online DIY sales are picked up at store locations. Through the Company’s online ordering platforms, Professional customers can place orders with a designated store location for delivery to their places of business or pick-up.
Downloadable PDF version of this valuation:
ModernGraham Valuation of AAP – 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 | $10,032,004,293 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.61 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 61.82% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 21.22 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 2.87 | Fail | |
| 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 | 1.61 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.49 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $6.46 |
| MG Growth Estimate | 2.17% |
| MG Value | $82.90 |
| Opinion | Overvalued |
| MG Grade | C- |
| MG Value based on 3% Growth | $93.66 |
| MG Value based on 0% Growth | $54.90 |
| Market Implied Growth Rate | 6.36% |
| Current Price | $137.07 |
| % of Intrinsic Value | 165.35% |
Advance Auto Parts, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PEmg and PB ratios. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $5.64 in 2014 to an estimated $6.46 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 6.36% 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 below the price.
At the time of valuation, further research into Advance Auto Parts, Inc. revealed the company was trading above its Graham Number of $82.94. The company pays a dividend of $0.24 per share, for a yield of 0.2% Its PEmg (price over earnings per share – ModernGraham) was 21.22, which was above the industry average of 17.9. Finally, the company was trading above its Net Current Asset Value (NCAV) of $7.4.
Advance Auto Parts, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | $7.40 |
| Graham Number | $82.94 |
| PEmg | 21.22 |
| Current Ratio | 1.61 |
| PB Ratio | 2.87 |
| Current Dividend | $0.24 |
| Dividend Yield | 0.18% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 4/1/2018 |
| Total Current Assets | $5,617,516,000 |
| Total Current Liabilities | $3,480,139,000 |
| Long-Term Debt | $1,044,755,000 |
| Total Assets | $8,614,953,000 |
| Intangible Assets | $1,576,807,000 |
| Total Liabilities | $5,068,332,000 |
| Shares Outstanding (Diluted Average) | 74,205,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $6.62 |
| Dec2017 | $6.42 |
| Dec2016 | $6.20 |
| Dec2015 | $6.40 |
| Dec2014 | $6.71 |
| Dec2013 | $5.32 |
| Dec2012 | $5.22 |
| Dec2011 | $5.11 |
| Dec2010 | $3.95 |
| Dec2009 | $2.83 |
| Dec2008 | $2.49 |
| Dec2007 | $2.28 |
| Dec2006 | $2.16 |
| Dec2005 | $2.13 |
| Dec2004 | $1.66 |
| Dec2003 | $1.11 |
| Dec2002 | $0.60 |
| Dec2001 | $0.13 |
| Dec2000 | $0.23 |
| Dec1999 | -$0.30 |
| Dec1998 | -$0.04 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $6.46 |
| Dec2017 | $6.32 |
| Dec2016 | $6.17 |
| Dec2015 | $6.02 |
| Dec2014 | $5.64 |
| Dec2013 | $4.90 |
| Dec2012 | $4.44 |
| Dec2011 | $3.81 |
| Dec2010 | $3.02 |
| Dec2009 | $2.49 |
| Dec2008 | $2.26 |
| Dec2007 | $2.06 |
| Dec2006 | $1.81 |
| Dec2005 | $1.46 |
| Dec2004 | $1.00 |
| Dec2003 | $0.57 |
| Dec2002 | $0.24 |
Recommended Reading:
Other ModernGraham posts about the company
| Advance Auto Parts Inc Valuation – August 2017 $AAP | |
| Advance Auto Parts Inc Valuation – November 2016 $AAP | |
| Advance Auto Parts Inc. Analysis – Initial Coverage $AAP |
Other ModernGraham posts about related companies
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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