Analysts Just Trimmed Price Targets for These 5 Stocks

04. Advance Auto Parts, Inc. (NYSE:AAP)

Price Reaction after the Price Target Cut: -1.53 (-2.20%)

On August 24, Royal Bank of Canada adjusted the price target of Advance Auto Parts, Inc. (NYSE:AAP), a significant player in the automotive aftermarket industry. The previous price target of $84 has been lowered to $70, reflecting a notable decrease in valuation. Correspondingly, the current market price of Advance Auto Parts, Inc. (NYSE:AAP) stands at $67.91, indicating a decline of approximately -2.2%. It is noteworthy that Royal Bank of Canada has retained its Sector Perform rating for the company, underscoring a consistent perspective on Advance Auto Parts, Inc. (NYSE:AAP) performance within its industry sector. This comprehensive analysis offered by Royal Bank of Canada serves as a valuable tool for investors and stakeholders, offering insights to guide their decisions based on both the revised price target and the unaltered Sector Perform rating, considering Advance Auto Parts, Inc. (NYSE:AAP) role within the broader automotive aftermarket landscape.

Palm Valley Capital Fund made the following comment about Advance Auto Parts, Inc. (NYSE:AAP) in its second quarter 2023 investor letter:

“We acquired small stakes in two new names during the quarter: Advance Auto Parts, Inc. (NYSE:AAP) and TrueBlue (ticker: TBI). Advance Auto Parts is an automotive aftermarket parts provider serving professional installers and do-it-yourself customers. Palm Valley briefly owned the stock during the 2020 lockdowns, when the shares quickly reached our valuation. Advance has almost 5,000 U.S. locations. Margins for the business have been inferior to those of O’Reilly and AutoZone, two leading competitors. This is due both to customer mix and operating efficiency.

The shares of Advance plummeted from a high of $230 reached in January 2022 to the $60’s in June 2023. Profitability is being negatively impacted by pricing decisions designed to bolster market share in the professional sales channel. As a result, the firm reduced earnings guidance and its dividend. Auto parts retailers have historically been recession-resistant and are benefiting from the expanding average age of vehicles. While there remain risks, such as growth in electric vehicles that require fewer parts, we believe Advance’s stock is cheap based on normalized earnings. Furthermore, we expect its balance sheet to improve later this year as inventories decline and operating margins rise.”