Over the past 3 months, KAR is -18% versus CPRT (-3%), Business Service peers (-10%) and the S&P 500 (-11%). We think this is a name worth revisiting given visibility into near-term growth, strong returns with limited cyclicality, two new growth streams (TradeRev and Int’l), and a looming catalyst for valuation, which while delayed, is not far away (spin-off).
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This morning (12/4/18), AZO printed Q1 results with SSS of 2.7% above Consensus of 1.8% and our 1.5%. Adj. EPS $13.47 beat Consensus of $12.21 and our $12.32. AZO also beat on GM, SG&A, and tax (Exhibit 2). AZO shares were up 7% versus S&P 500 -3%.
Copart reported FQ1 ‘19 results this morning (11/21/18). Total revenue of $461m met Cons. $460m but missed our $469m; however, the more important Service revenue missed. Adj. EPS of $0.47 met Cons. $0.47 but missed our $0.50. Shares were up 5% vs. +1% S&P 500.
This morning (11/13/2018), AAP reported Q3 SSS of 4.6% vs Cons. of 2.5%/our 2.0%. Adj. EPS of $1.89 beat Cons. of $1.76/our $1.68. EBIT margins of 8.5% beat Cons. 8.3% and our 8.0%. AAP raised FY comps and FCF by 30%. AAP was +11% vs S&P +0%.
Once a quarter, we comb through corporate filings and summarize the most noteworthy datapoints. At a high level, developments during the quarter reinforced our view that investors should be Underweight Autos and Auto Parts, Underweight Dealers, and Overweight a relatively small selection of companies that fall into the Auto 2.0 category. In our view the U.S. Auto Cycle is in its 8th or 9th inning, with looming pressures on vehicle affordability. China is experiencing its first real Auto Industry downturn, and we are not convinced that the Central Government will step in to specifically prop up Autos. Europe also faces a number of challenges: These include potential trade risks (7% of Europe produced vehicles are exported to the U.S.), political risks (Brexit), and regulatory risks (vehicles more expensive to produce, at the same time that pricing has become more challenged).
KAR reported Q3 on 11/6 with call today (11/08/18). Total rev of $934m beat cons. of $910m but missed our $940m. Adj. EBITDA of $216m missed cons. $223m and our $228m. KAR implied Q4 guide also missed Cons.
VVV reported FQ4 results AMC on 11/5 with call on 11/6. Gross profit of $203m missed Cons of $211m. The all-important NA $GP/Gallon was a large miss at $3.57 vs. $4.00 guidance. Adj. EPS of $0.34 missed Cons./our $0.35. VVV issued 2019 guidance with midpoint EBITDA missing Cons. by 3% and SG&A growth +8-10%. VVV -8% vs S&P +1%.
KAR reported Q3 2018 results post-close (11/6/18). Total revenue of $934m exceeded cons. of $910m but was below our $940m. Adj. EBITDA of $216m missed cons. $223m and our $228m. KAR EBITDA missed on both ADESA and IAA but met on AFC. Adj. EPS of $0.70 was in-line with cons. of $0.70 and below our $0.76.
Wednesday (10/25/18), after the market closed, ORLY reported Q3 results. SSS of 3.9% were in-line with consensus of 3.8% and Wolfe 4.0%. EPS of $4.50 beat consensus of $4.31 and our $4.39. Q4 comp guidance of 2-4% was a little light vs. Cons. 3.6% and our 4.5%, but mgmt. pointed to difficult compares and a calendar shift for their conservatism.
This AM (10/25/18) LKQ reported Q3 18 results including Organic growth of +4.3% versus our +5.9% and Adj. EPS of $0.56 that met a lowered Cons of $0.56 and our $0.55. Positively, LKQ demonstrated improved margins in both NA and Europe and instituted a desperately needed buyback. Negatively, it lowered full-year guidance by $0.07 with scrap metal/FX representing $0.04 of the headwind. The other $0.03 guide was to eliminate low margin revenue. We see a lower tolerance for EPS revisions from here.
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