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On Thursday, Citi analysts adjusted their outlook on Advance Auto Parts (NYSE:AAP) shares, reducing the price target to $40 from the previous $47 while maintaining a Neutral stance on the stock. The adjustment comes as the stock has fallen nearly 15% in the past week, now trading at $37.70. In the wake of the company’s fourth-quarter earnings report, analysts expressed concerns, noting that the results raised more questions than they answered, particularly regarding the effectiveness of the company’s turnaround strategy. According to InvestingPro analysis, the stock appears slightly undervalued at current levels, with 8 additional real-time insights available to subscribers.
The Citi analysts highlighted several factors contributing to their cautious view, including what they described as "atypical" gross margin weakness of 37.48%, a 2025 guidance that is heavily reliant on the latter half of the period, and a forecast for weak free cash flow. These elements have led to diminished confidence in the company’s near-term prospects, reflected in the company’s weak overall financial health score of 1.64 out of 5 on InvestingPro.
The analysts pointed out that while there are numerous changes underway at Advance Auto Parts, such as store closures and current weak trends, it remains challenging to determine if there has been a significant shift in the company’s trajectory. With revenue declining 19.43% over the last twelve months and analysts forecasting continued sales decline, they emphasized the need for caution, opting to set their fiscal year 2025 estimates below the management’s guidance to incorporate a more conservative approach. Get detailed insights into AAP’s turnaround potential with InvestingPro’s comprehensive research report, part of their coverage of over 1,400 US stocks.
Furthermore, the Citi team remarked on the historical context, observing that long-term investors might recognize a recurring pattern with Advance Auto Parts. They noted that similar turnaround efforts in the past have not been successful for the company. This historical perspective contributed to their decision to lower both their earnings estimates and the price target for the stock.
The analysts concluded their commentary by reiterating their Neutral rating, signaling that while they recognize the efforts being made by management, they remain guarded about the company’s ability to deliver on its turnaround plan and improve its financial performance in the foreseeable future.
In other recent news, Advance Auto Parts Inc reported its fourth-quarter 2024 earnings, surpassing expectations with an adjusted diluted loss per share of $1.18, which was better than the forecasted loss of $1.31. The company’s revenue reached $2 billion, slightly exceeding the anticipated $1.93 billion. Despite the earnings beat, the company announced significant operational changes, including plans to close 500 corporate and 200 independent stores, as well as consolidating distribution centers. These strategic shifts are part of a broader plan to optimize the company’s asset base and improve future performance. Analysts from firms like Jefferies and JPMorgan have shown interest in these developments and the company’s projections for 2025, which include net sales between $8.4 billion and $8.6 billion. Advance Auto Parts also aims for an adjusted operating income margin of 2-3% and adjusted diluted EPS between $1.50 and $2.50. The company has maintained a strong cash position of $1.9 billion, which may support its strategic initiatives moving forward.
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