Advance Auto Parts Proves Its Worth Advance Auto Parts (NYSE: AAP) began a campaign to improve its value to shareholders last year that is paying off in the form of dividend increases and share buybacks. The...

Advance Auto Parts Investors Are Riding In Style

Advance Auto Parts (NYSE: AAP) began a campaign to improve its value to shareholders last year that is paying off in the form of dividend increases and share buybacks. The company is focused on improving profitability and cash flow, expansion and growth, balance sheet strength, and above all, capital returns to shareholders. Those returns reached $1.0 billion in F2021 and are on track to top those numbers in 2022 and there is upside risk in both the revenue and earnings outlook as well as the capital return program. In our view, trading at only 15X its 2022 earnings consensus (which underestimates growth), and paying 2.7% in dividends this stock is very desirable. Oh yeah, and systemic tightness in the OEM new and used auto markets means there are secular tailwinds driving the business.

"Advance had a strong fourth quarter and delivered a record year in 2021 across all key metrics. We remained focused throughout the year on the execution of the strategy we outlined last April to deliver top-quartile total shareholder return. Thanks to the dedication of our team members and Independent partners, our business is substantially stronger and better positioned today than it was prior to the pandemic," said Tom Greco, president, and chief executive officer.

Advance Auto Parts Beats And Guides Strong

Advance Auto Parts had a fantastic f2021 and topped off the record-setting year with a record-setting quarter. The company reported $2.4 billion in consolidated revenue for a gain of 1.3% over last that beat the Marketbeat.com consensus by 125 basis points. The strength was driven by organic sales, pricing, and mix and is all the stronger due to the number of weeks in last year's quarter. When adjusted for last year's extra week organic sales are up 8.3% with a comp of 8.2%. The company did not give any segment or regional breakdown.

Moving on to margin and profitability, the company reported a 145 basis point improvement due to price/mix offsetting rising wages and input costs. SG&A increased by 49 basis points but includes the costs of expansions and did not completely offset AGM gains so we aren't worried. On the bottom line, the $2.07 in adjusted EPS is up $0.20 from last year and beat the consensus by $0.10 or about 500 basis points, we like that.

The company also issued its guidance for 2022 and it is strong guidance indeed. The company is looking for revenue in the range of $11.20 billion to $11.50 versus the Marketbeat.com consensus of $11.24 billion and for margin gains to continue as well. The company is calling for EPS in the range of $13.20 to $13.75 compared to last year's $12.02 and the consensus of $13.02. We like these numbers, too.

Capital Returns Will Drive Share Prices

If you doubt the health of Advance Auto Parts or its capital return program you have only to look at the institutional ownership to know the truth. The institutions own 98.1% of this company and net activity has been bullish over the last year, in part because of the dividend which was just increased by 50%, and in part by the buyback plans. The company repurchased about $0.50 billion worth of shares in 2021 and had about that much left to go under the current authorization. The board approved another $1.00 billion at the end of FQ4 which brings the total allotment to $1.5 billion or about 11.15% of the market cap. This stock is going higher, if not now then over the long term but it is going higher.

Turning to the charts, the stock price has been range bound and consolidating near all-time high levels the last few months. The most recent action has the stock confirming support at the bottom of the range but it may be tested again. The stock is moving lower in premarket action despite the strong results and outlook and may enter a correction if support at the $220 level begins to break down. In that event, this stock will only become more attractive.