STOCK WATCH


Advance Auto Parts: Revved Up

Acquisitions and new store openings, plus revamping of existing stores, have been driving sales growth at this auto-parts seller.



The average automobile in this country is nine years old, according to the American Automobile Association. That's good news for Advance Auto Parts.

Advance operates more than 2,870 stores throughout the country, selling automotive aftermarket parts, accessories, batteries and maintenance items. Only one auto-parts chain has more size advantage: AutoZone. But while AutoZone's stock has barely budged over the past year, shares of Advance (symbol AAP) have jumped 47%. "Advance has clearly identified itself as a leader in the auto-parts sphere," says Jeff Sonnek, an analyst at Friedman, Billings, Ramsey Co., in Arlington, Va. Advance's stock, currently $42, sells at 17 times analysts 2006 earnings estimates of $2.46 per share, according to Thomson First Call. Sonnek thinks the stock is worth $50.

Revenues have been growing steadily over the past five years, driven by acquisitions, new store openings, and good growth at stores already in existence. In 2005, sales reached $4.3 billion, up 13% from 2004. Earnings per share increased 28%, to $2.13. The Roanoke, Va., company projects that earnings will increase 11% to 16% in 2006.

Advance's efforts to revamp existing stores have also been a big driver of growth, Sonnek says. In 2003, Advance began a remodeling program to improve the layout of merchandise in its stores. So far, more than 1,400 stores have been overhauled. This strategy "continues to bear fruit, as these locations are seeing a double-digit bump in sales," says Sonnek.

Advance also recently instituted its first cash dividend -- at a quarterly rate of six cents per share. That's another sign of the company's strength, Sonnek says.

--Katy Marquardt




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