Benzinga | May 4, 2021 12:50PM EDT

6 Reasons Why Goldman Sachs Upgrades Advance Auto Parts Stock

As the economy gradually moves towards normalization and there is a ramp-up for vaccinations, auto parts retailers like Advance Auto Parts, Inc. (NYSE:AAP) are poised to benefit, despite strong comps in 2020, according to Goldman Sachs.

The Advance Auto Parts Analyst: Kate McShane upgraded the rating for Advance Auto Parts from Sell to Buy, while raising the price target from $180 to $227.

The Advance Auto Parts Thesis: The company has announced a three-year strategy, which includes projections of steady revenue growth and consistent margin expansion, "coupled with a cyclical post-pandemic recovery in the critical do-it-for-me (DIFM) segment of the auto parts space," McShane said in the upgrade note.

The analyst mentioned six reasons for the double tier upgrade:

* Improving P&L dynamics

* Cyclical recovery in DIFM, where Advance Auto Parts has greater exposure than peers

* Improving DIY space, where the company's "new private label and loyalty program appears to be resonating with customers"

* Higher capital allocation to shareholders

* The "ability of the auto parts space to pass-through inflation"

* Valuation, which looks "appealing vs history, especially in light of improving macro and company-specific dynamics," McShane wrote.



(Photo by Erik Witsoe on Unsplash)