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On Thursday, RBC Capital Markets adjusted its outlook on Advance Auto Parts (NYSE:AAP) by reducing the price target from $50.00 to $44.00, while keeping a Sector Perform rating on the company’s shares. The stock, currently trading at $37.92, has declined nearly 15% in the past week and 40% over the last year. According to InvestingPro analysis, the company appears fairly valued based on its proprietary Fair Value model. The adjustment follows an analysis of the company’s recent performance, which indicated some progress in its turnaround efforts but was overshadowed by various atypical items and softer-than-expected trends in the current quarter.
The research firm noted that despite some signs of recovery, there were too many variables affecting margin outcomes to confidently predict improvements. The soft guidance for the first quarter did not improve the situation. This uncertainty is reflected in the company’s financial metrics, with InvestingPro data showing a concerning 19.4% revenue decline and a high debt-to-equity ratio of 1.92x, suggesting potential challenges in meeting debt obligations. RBC Capital’s analysts have maintained their sales estimates for 2025 and 2026 at approximately flat and a 1% increase, respectively. However, due to ongoing uncertainty around gross margin improvements and other factors, the firm has revised its adjusted earnings per share (EPS) forecasts downward to $1.06 and $2.57 for 2025 and 2026, from the previous estimates of $1.55 and $2.93.
The new price target of $44 is based on approximately 17 times RBC Capital’s revised 2026 adjusted EPS estimate of $2.57. The firm’s commentary highlighted the difficulty in quantifying the potential upside of gross margins and the impact of various non-recurring items on the financial results.
The report from RBC Capital reflects a cautious stance on the future profitability of Advance Auto Parts, taking into account the present challenges and uncertainties in the market. The company’s stock price will continue to be influenced by its ability to navigate these issues and deliver on its turnaround strategy. While currently unprofitable, InvestingPro analysis indicates analysts expect the company to return to profitability this year. Get access to 7 more exclusive ProTips and a comprehensive analysis of AAP’s turnaround potential with an InvestingPro subscription.
In other recent news, Advance Auto Parts reported its fourth-quarter 2024 earnings, revealing a narrower-than-expected loss per share of $1.18, compared to the forecasted loss of $1.31. The company also exceeded revenue expectations, posting $2 billion against a projected $1.93 billion. Despite these positive earnings results, Citi analysts maintained a Neutral rating on Advance Auto Parts, adjusting their price target from $47 to $40. Analysts expressed concerns over atypical gross margin weakness and a heavily backloaded 2025 guidance. They also highlighted weak free cash flow forecasts and historical challenges with turnaround strategies. Advance Auto Parts announced strategic changes, such as store closures and distribution center consolidations, aiming for potential growth with projected 2025 net sales between $8.4 billion and $8.6 billion. The company’s CEO emphasized a strong cash position and a focus on strategic initiatives to drive future performance.
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