Category: GPC

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market’s attention and produce exceptional returns. But finding a great growth stock is not easy at all.

By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company’s growth story is over or nearing its end, betting on it could lead to significant loss.

However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company’s real growth prospects, makes it pretty easy to find cutting-edge growth stocks.

Genuine Parts (GPC Quick QuoteGPC – Free Report) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.

Research shows that stocks carrying the best growth features consistently beat the market. And returns are even better for stocks that possess the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).

While there are numerous reasons why the stock of this auto and industrial parts distributor is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. And for growth investors, double-digit earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Genuine Parts is 10.5%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 8.6% this year, crushing the industry average, which calls for EPS growth of -2.4%.

Cash Flow Growth

While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That’s because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.

Right now, year-over-year cash flow growth for Genuine Parts is 19.2%, which is higher than many of its peers. In fact, the rate compares to the industry average of 2.3%.

While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 12.5% over the past 3-5 years versus the industry average of 7.3%.

Promising Earnings Estimate Revisions

Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

There have been upward revisions in current-year earnings estimates for Genuine Parts. The Zacks Consensus Estimate for the current year has surged 1.5% over the past month.

Bottom Line

While the overall earnings estimate revisions have made Genuine Parts a Zacks Rank #2 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This combination positions Genuine Parts well for outperformance, so growth investors may want to bet on it.

Investment Thesis

Genuine Parts Company (NYSE:GPC) deals in automotive and industrial replacement parts covering the major market of North America, Europe, Australia, and New Zealand. The company has recently delivered consecutive strong quarterly and annual results. I believe it can sustain this growth over a long period as a result of its expanding global footprint and solid demand trends.

About GPC

GPC deals in distributing automotive and industrial replacement parts globally. Through its offering of consumable/replacement parts and enhanced technology solutions, it operated in over 10600 locations in North America, Europe, Australia, and New Zealand in 2022. The company conducts its business in two segments: Automotive and Industrial. The automotive segment, considered the largest global automotive parts and care network, distributes automotive parts, accessories, and service items in North America, Europe, and Australasia. The company offers complete inventory management, cataloging, marketing, and training programs in each region. It covers all global motor vehicle models through its automotive network, including both commercial do-it-for-me (DIFM) and retail do-it-yourself (DIY). Its European operations are based in nine European countries where Alliance Automotive Group (AAG), one of the company’s wholly owned subsidiaries, distributes vehicle parts, tools, and workshop equipment, whereas North American distribution centers and automotive parts store sells automotive parts under the National Automotive Parts Association (NAPA) brand. The Industrial segment serves North America and Australasia through its wholly-owned subsidiaries Motion Asia Pacific and Motion Industries. This segment distributes industrial replacement parts and related supplies to maintenance across the United States, Canada, Mexico, and Australasia, including bearings, mechanical and electrical power transmission equipment, industrial automation and robotics, hoses, hydraulic and pneumatic components, industrial and safety supplies and material handling supplies. The company earns 62% of its total sales from the Automotive segment, while the industrial segment contributes 38% of the total revenue. GPC’s maximum business heavily depends on the USA as 68% of revenue is generated from the USA region. The company earns 14% of its revenue from the Europe region, while Canada & Australasia each contribute 9% to the total sales.

Financials

The increasing rate of longer and extended product life cycles has significantly boosted the demand for replacement parts and maintenance servicing worldwide. This rise in demand has created ample opportunities for the participants in the industry and has acted as a primary reason to accelerate the industry growth, which has been reflected in the company’s strong quarterly performance. Recently, Genuine Parts Company reported its Q4 FY22 results. The company has reported net sales of $5.5 billion, a 15.0% YoY growth compared to $4.8 billion in Q4 FY21. The Automotive segment reported a profit of $295 million, an 11.0% jump from $265.8 billion in last year’s same period, whereas the Industrial segment reported a profit of $230 million, which 49.8% YoY profit growth compared to $153.8 million in Q4FY21. The company reported a net income of $252 million which is a decrease of 1.56% compared to $256 million in Q4FY21. The decrease in net income resulted from loss related to investments in S.P. Richards and loss related to the integration of KDG. Decreased net income resulted in diluted EPS of $1.77. The company has also delivered an outstanding annual result for FY2022 by recording sales of $22.1 billion, which is 17.1% up compared to 18.9 billion in the previous year. The company reported diluted EPS of $8.31, which is a growth of 33.38% YoY compared to $6.23 in FY2021. $1.5 billion in cash flow from operations were generated by the company in 2022, which is an increase of 16.6% from $1.3 billion in 2021. In total, the company had $2.2 billion in liquidity at the end of the quarter and year.

The results have outperformed the market expectations in terms of sales. I believe that the company can sustain this growth over the long run due to the geographic diversity of its markets, advanced pricing strategies, and expansion strategies which have increased its global footprint. The company has provided guidance for FY2023. It expects revenue growth of 4% to 6% and diluted EPS between $8.80 to $8.95. I think the company’s expectations are conservative. According to seeking alpha, the company’s EPS might be between $8.85 to $9.17. I think the seeking alpha’s EPS estimates are accurate as GPC can benefit greatly from the solid demand trends in the industry.

Dividend Yield

The company has an impressive dividend history and has managed to increase the annual dividend for 67 consecutive years. In the previous year, it distributed a cash dividend of $0.895 in each of the four quarters, which makes the annual dividend $3.58, representing a dividend yield of 2.08%. Recently, in the current year, it has announced a dividend of $0.95 for the first quarter. I believe it can sustain this dividend for the next three quarters, making the annual dividend $3.8 per share, representing a dividend yield of 2.21%. This stable dividend payment history makes the company an attractive investment opportunity for risk-averse and yield-hungry investors.

What is the Main Risk Faced by GPC?

The company operates in a highly competitive industry where the competitors compete based on factors such as name recognition, product quality, customer service, store location, and pricing. It has to compete with national, international, regional, and local competitors, which include mass merchandisers, automobile dealers that offer manufacturer parts and accessories, automotive parts and accessories stores, and full-service automotive repair shops. To remain competitive in the market, the competitors may offer competitive prices, forcing the company to reduce its price or increase promotional spending. If it reduces the prices, it could negatively impact revenues and may contract the company’s profit margins.

Conclusion

Genuine Parts Company mainly focuses on selling industrial and automotive replacement parts on a global level. It operates in a highly competitive industry that can contract profit margins due to competitive pricing and promotional spending. The company has recently announced its fourth quarter and annual results for 2022, in which it has managed to perform well in terms of sales and provide positive guidance for FY2023. I believe it can deliver strong results in the coming quarters by outperforming the company’s expectations, mainly due to strong demand trends and the global geographic footprint of the company. It has experienced significant dividend growth over the years, which makes it an attractive investment opportunity for risk-averse and yield-hungry investors. After considering all the above factors, I assign a buy rating to GPC stock.

Genuine Parts (GPC Quick QuoteGPC – Free Report) came out with quarterly earnings of $2.05 per share, beating the Zacks Consensus Estimate of $1.90 per share. This compares to earnings of $1.79 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 7.89%. A quarter ago, it was expected that this auto and industrial parts distributor would post earnings of $2.03 per share when it actually produced earnings of $2.23, delivering a surprise of 9.85%.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

Genuine Parts, which belongs to the Zacks Automotive – Replacement Parts industry, posted revenues of $5.52 billion for the quarter ended December 2022, surpassing the Zacks Consensus Estimate by 3.27%. This compares to year-ago revenues of $4.8 billion. The company has topped consensus revenue estimates four times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Genuine Parts shares have added about 0.2% since the beginning of the year versus the S&P 500’s gain of 4%.

What’s Next for Genuine Parts?

While Genuine Parts has underperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Genuine Parts: favorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #2 (Buy) for the stock. So, the shares are expected to outperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $1.96 on $5.5 billion in revenues for the coming quarter and $8.76 on $22.71 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Automotive – Replacement Parts is currently in the bottom 14% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

One other stock from the same industry, CarGurus (CARG Quick QuoteCARG – Free Report) , is yet to report results for the quarter ended December 2022. The results are expected to be released on February 28.

This online auto shopping platform is expected to post quarterly earnings of $0.09 per share in its upcoming report, which represents a year-over-year change of -79.1%. The consensus EPS estimate for the quarter has been revised 216.7% lower over the last 30 days to the current level.

CarGurus’ revenues are expected to be $279.28 million, down 17.7% from the year-ago quarter.

Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market’s attention and produce exceptional returns. However, it isn’t easy to find a great growth stock.

That’s because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.

However, it’s pretty easy to find cutting-edge growth stocks with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company’s real growth prospects.

Our proprietary system currently recommends Genuine Parts (GPC Quick QuoteGPC – Free Report) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.

Studies have shown that stocks with the best growth features consistently outperform the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

Here are three of the most important factors that make the stock of this auto and industrial parts distributor a great growth pick right now.

Earnings Growth

Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Genuine Parts is 5.2%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 15.4% this year, crushing the industry average, which calls for EPS growth of 14.1%.

Cash Flow Growth

While cash is the lifeblood of any business, higher-than-average cash flow growth is more important and beneficial for growth-oriented companies than for mature companies. That’s because, growth in cash flow enables these companies to expand their businesses without depending on expensive outside funds.

Right now, year-over-year cash flow growth for Genuine Parts is 41.6%, which is higher than many of its peers. In fact, the rate compares to the industry average of 18.5%.

While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 12.8% over the past 3-5 years versus the industry average of 10.9%.

Promising Earnings Estimate Revisions

Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

There have been upward revisions in current-year earnings estimates for Genuine Parts. The Zacks Consensus Estimate for the current year has surged 0.5% over the past month.

Bottom Line

Genuine Parts has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This combination positions Genuine Parts well for outperformance, so growth investors may want to bet on it.

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What are the Zacks Style Scores?

Developed alongside the Zacks Rank, the Zacks Style Scores are a group of complementary indicators that help investors pick stocks with the best chances of beating the market over the next 30 days.

Based on their value, growth, and momentum characteristics, each stock is assigned a rating of A, B, C, D, or F. The better the score, the better chance the stock will outperform; an A is better than a B, a B is better than a C, and so on.

The Style Scores are broken down into four categories:

Value Score

For value investors, it’s all about finding good stocks at good prices, and discovering which companies are trading under their true value before the broader market catches on. The Value Style Score utilizes ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to help pick out the most attractive and discounted stocks.

Growth Score

Growth investors are more concerned with a stock’s future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum investors, who live by the saying “the trend is your friend,” are most interested in taking advantage of upward or downward trends in a stock’s price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.

VGM Score

What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

The Zacks Rank is a proprietary stock-rating model that harnesses the power of earnings estimate revisions, or changes to a company’s earnings expectations, to help investors build a successful portfolio.

Investors can count on the Zacks Rank’s success, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988, more than double the S&P 500’s performance. But the model rates a large number of stocks, and there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.

That’s where the Style Scores come in.

You want to make sure you’re buying stocks with the highest likelihood of success, and to do that, you’ll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

Since the Scores were created to work together with the Zacks Rank, the direction of a stock’s earnings estimate revisions should be a key factor when choosing which stocks to buy.

For instance, a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one that boasts Scores of A and B, still has a downward-trending earnings forecast, and a much greater likelihood its share price will decline as well.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Genuine Parts (GPC Quick QuoteGPC – Free Report)

Genuine Parts Company, based in Atlanta, GA, distributes automotive and industrial replacement parts and materials, and business products across the United States, Canada, Mexico, Australia, New Zealand, Singapore, Indonesia, France, the U.K., Germany and Poland. As of Dec 31, 2019, it employed approximately 55,000 people worldwide. Currently, the company operates through two segments:

GPC is a #3 (Hold) on the Zacks Rank, with a VGM Score of A.

Additionally, the company could be a top pick for growth investors. GPC has a Growth Style Score of A, forecasting year-over-year earnings growth of 14.8% for the current fiscal year.

Two analysts revised their earnings estimate upwards in the last 60 days for fiscal 2021. The Zacks Consensus Estimate has increased $0.10 to $6.05 per share. GPC boasts an average earnings surprise of 20.3%.

With a solid Zacks Rank and top-tier Growth and VGM Style Scores, GPC should be on investors’ short list.

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market’s attention and produce exceptional returns. However, it isn’t easy to find a great growth stock.

By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company’s growth story is over or nearing its end, betting on it could lead to significant loss.

However, the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company’s real growth prospects, makes it pretty easy to find cutting-edge growth stocks.

Genuine Parts (GPC Quick QuoteGPC – Free Report) is one such stock that our proprietary system currently recommends. The company not only has a favorable Growth Score, but also carries a top Zacks Rank.

Studies have shown that stocks with the best growth features consistently outperform the market. And returns are even better for stocks that possess the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).

While there are numerous reasons why the stock of this auto and industrial parts distributor is a great growth pick right now, we have highlighted three of the most important factors below:

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. And for growth investors, double-digit earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Genuine Parts is 4.9%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 13.3% this year, crushing the industry average, which calls for EPS growth of 12.9%.

Cash Flow Growth

Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That’s because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.

Right now, year-over-year cash flow growth for Genuine Parts is 10%, which is higher than many of its peers. In fact, the rate compares to the industry average of 8.3%.

While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 6.6% over the past 3-5 years versus the industry average of 5.9%.

Promising Earnings Estimate Revisions

Beyond the metrics outlined above, investors should consider the trend in earnings estimate revisions. A positive trend is a plus here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

The current-year earnings estimates for Genuine Parts have been revising upward. The Zacks Consensus Estimate for the current year has surged 0.1% over the past month.

Bottom Line

Genuine Parts has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #2 because of the positive earnings estimate revisions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This combination positions Genuine Parts well for outperformance, so growth investors may want to bet on it.

It has been about a month since the last earnings report for Genuine Parts (GPC Quick QuoteGPC – Free Report) . Shares have added about 0.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Genuine Parts due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Genuine Parts Q3 Earnings Beat, Up Y/Y

Genuine Parts reported third-quarter adjusted diluted earnings of $1.63 per share, surpassing the Zacks Consensus Estimate of $1.48.

Markedly, higher-than-expected revenues from the Industrial Parts segment resulted in this outperformance. Revenues from this segment came in at $1,409 million, beating the Zacks Consensus Estimate of $1,367 million. Moreover, the bottom line came in higher than the year-ago quarter’s profit of $1.39 per share.

This Atlanta-based automotive replacement parts supplier reported net sales of $4,370 million, missing the Zacks Consensus Estimate of $4,459 million. Moreover, the top-line figure comes in lower than the year-ago quarter’s $4525 million, marking a 3.4% decline year over year. This downside resulted from the 1.8% decline in comparable sales and a 4.2% impact from divestitures. These negatives were partially offset by a 1.3% benefit from acquisitions and a 1.3% net impact of foreign currency and other.

Genuine Parts did not issue any guidance for 2020 amid the coronavirus crisis.

Segmental Performance

The Automotive segment’s net sales, which have the highest contribution to the company’s revenues, totaled $2,960 million in the reported quarter, up 6% from the prior-year quarter’s $2,792.5 million. The segment’s comparable sales rose 2.2% during the third quarter. The segment’s operating profit increased to $266.1 million in the reported quarter from the year-ago quarter’s $222.6 million.

The Industrial Parts segment’s net sales dropped 18.6% from the year-ago quarter to $1,409.7 million. The segment’s comparable sales declined 9.2% during the reported period. Resultantly, operating profit fell to $125.6 million from the year-earlier quarter’s $137.5 million.

Costs & Cash Position

Total operating expenses edged down 1.34% during the September-end quarter, primarily due to decline in selling, general and administrative (SG&A) expenses. SG&A expenses during third-quarter 2020 slid 3.01% to $1,140.2 million from the $1,175.7 million incurred in third-quarter 2019.

Genuine Parts had cash and cash equivalents worth $900.1 million as of Sep 30, 2020. Long-term debt decreased to $2,700.6 million from the $2,795.9 million recorded in the year-ago period.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

Currently, Genuine Parts has a great Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Genuine Parts has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.