1. Advance Auto Parts, Inc. (NYSE:AAP)
Year-to-Date Share Price Decline: 54.32%
Number of Hedge Fund Holders: 38
Advance Auto Parts, Inc. (NYSE:AAP) provides automotive replacement parts, accessories, batteries, and maintenance services. The company was founded in 1929 and is based in Raleigh, North Carolina. Advance Auto Parts, Inc. (NYSE:AAP) is one of the worst performing S&P 500 stocks as of June 16, given the share price has nosedived 54.32% year-to-date.
On May 31, Advance Auto Parts, Inc. (NYSE:AAP) declared a $0.25 per share quarterly dividend, a 83.3% decrease from its prior dividend of $1.50. The dividend is payable on July 28, to shareholders of record on July 14. The company slashed its quarterly dividend by 83% to achieve higher financial flexibility.
According to Insider Monkey’s first quarter database, 38 hedge funds held stakes worth $584.6 million in Advance Auto Parts, Inc. (NYSE:AAP), compared to 39 funds in the prior quarter worth $722.2 million.
Here is what Heartland Advisors specifically said about Advance Auto Parts, Inc. (NYSE:AAP) in its Q3 2022 investor letter:
“We also found an opportunity to add to our existing position in Advance Auto Parts, Inc. (NYSE:AAP) as the stock fell and the risk/reward profile improved. Advance underperformed early in the quarter as lower-quality sector peers bounced significantly. In August, shares fell further after the company reported second quarter earnings that disappointed because of weakerthan-expected same-store sales. Furthermore, management reduced its full-year earnings outlook by ~4%, citing softening consumer purchasing patterns within AAP’s “do-it-yourself” business.
The most important driver of Advance Auto’s earnings power seems to be the management team’s ability to improve margin expansion. However, the market remains myopically focused on sales growth. The margin expansion opportunity originates from the consolidation of an overly complex and inefficient distribution network. Management is planning to roll out new distribution center. software through 2023 that will reduce costs, improve network productivity, and enhance customer experience through better inventory availability.
In addition, the auto parts retailing industry tends to be less cyclical than the Consumer Discretionary sector because consumers often hold onto their used cars longer and make necessary repairs rather than buy new vehicles when their financial prospects are weakened. AAP is currently trading at less than 12 times forward earnings, well below the company’s long-term median P/E of more than 15—while having significant room to improve profitability owing to its self-help initiatives.”
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