An analyst upgrade was the foot on Advance Auto Parts (AAP 4.57%) stock’s gas pedal on Tuesday. The company’s shares motored nearly 5% higher in price as a result, speeding well past the benchmark S&P 500 index’s 0.6% increase.
A new neutral
The pundit behind the change was Sam Hudson of U.K.-based Redburn Atlantic. He shifted his recommendation to neutral from his previous sell and lifted his Advance price target. This is now $45 per share, well up from Hudson’s previous fair value estimation of $28.
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According to reports, while the analyst remains concerned about the sluggishness of management’s efforts to turn around the company’s fortunes, it should benefit from improving conditions in the auto parts market.
Late last month, an article in The Wall Street Journal indicated that demand was rising for used vehicles, largely because of the sweeping tariffs introduced by the Trump administration. In fact, the article stated, inventory at used car dealerships dropped to levels unseen since the pandemic earlier this decade.
All things being equal, higher sales of used cars result in brisker take-up of the components required to keep them running, hence a better environment for parts retailers like Advance.
Not currently an attractive stock
While that’s an encouraging development for Advance and its auto retail peers, I’m not sure that would sell me on the company’s stock. Retail is tough in any segment, let alone the auto industry, and I don’t feel we’re in front of a long-tail surge in car sales, used or otherwise. Personally, then, I’d let Advance stock drive on by without purchasing it.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
