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June 4, 2017 NASDAQ: LKQ LKQ CORP BUY A+ A A- HOLD B+ B Annual Dividend Rate NA B- C+ C Annual Dividend Yield NA SELL C- D+ D Beta NA Sector: Consumer Goods & Svcs LKQ BUSINESS DESCRIPTION LKQ Corporation, together with its subsidiaries, distributes replacement parts, components, and systems used in the repair and maintenance of vehicles in North America, Europe, and Taiwan. It operates in three segments: North America, Europe, and Specialty. STOCK PERFORMANCE (%) 3 Mo. Price Change 0.24 Weekly Price: (US$) D- E+ E E- Market Capitalization $10.0 Billion Sub-Industry: Distributors SMA (50) F BUY 52-Week Range $27.85-$36.35 RATING SINCE TARGET PRICE 06/01/2010 $37.35 Price as of 6/1/2017 $32.34 Source: S&P SMA (100) 1 Year 2 Years TARGET TARGET TARGETPRICE PRICE PRICE$37.35 $37.35 $37.35 TARGET 38 35 33 30 1 Yr. -1.08 3 Yr (Ann) 5.25 12 Mo. 22.68 13.95 10.71 3 Yr CAGR 17.92 13.74 12.45 28 GROWTH (%) Last Qtr 21.92 21.49 21.62 Revenues Net Income EPS 25 Rating History BUY Volume in Millions 75 RETURN ON EQUITY (%) LKQ 13.43 13.24 13.81 Q1 2017 Q1 2016 Q1 2015 Ind Avg 32.66 28.96 25.15 S&P 500 12.81 11.95 14.20 20.86 23.24 25.70 LKQ Ind Avg S&P 500 2016 0 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History HIGHLIGHTS The revenue growth came in higher than the industry average of 0.3%. Since the same quarter one year prior, revenues rose by 21.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. 2016 The net income growth from the same quarter one year ago has significantly exceeded that of the Distributors industry average, but is less than that of the S&P 500. The net income increased by 21.5% when compared to the same quarter one year prior, going from $112.17 million to $136.28 million. Q1 0.45 Q4 0.31 Q3 0.33 Q2 0.46 LKQ CORP has improved earnings per share by 21.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, LKQ CORP increased its bottom line by earning $1.47 versus $1.38 in the prior year. This year, the market expects an improvement in earnings ($1.87 versus $1.47). Q1 0.37 Q4 0.31 Q3 0.33 Q2 0.39 EPS ANALYSIS¹ ($) Q1 0.35 25 RECOMMENDATION We rate LKQ CORP (LKQ) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, growth in earnings per share, increase in net income, expanding profit margins and good cash flow from operations. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself. P/E COMPARISON 2015 50 2017 NA = not available NM = not meaningful 1 Compustat fiscal year convention is used for all fundamental data items. 39.70% is the gross profit margin for LKQ CORP which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 5.81% is above that of the industry average. Net operating cash flow has increased to $172.29 million or 32.32% when compared to the same quarter last year. In addition, LKQ CORP has also vastly surpassed the industry average cash flow growth rate of -20.97%. This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved. Report Date: June 4, 2017 PAGE 1 June 4, 2017 NASDAQ: LKQ LKQ CORP Sector: Consumer Goods & Svcs Distributors Source: S&P Annual Dividend Rate NA Annual Dividend Yield NA PEER GROUP ANALYSIS 250% FA RA VO BL E FA B RA VO LE -50% LKQ GPC CORE DIT POOL WEYS 12.5% EBITDA Margin (TTM) Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $29.2 Million and $13.9 Billion. Companies with NA or NM values do not appear. *EBITDA – Earnings Before Interest, Taxes, Depreciation and Amortization. Price as of 6/1/2017 $32.34 The industry is a competitive, cyclical, and fragmented $2.5 trillion enterprise, which includes numerous small firms and several large, full-service wholesale distributors. Companies face competition from online retailers and manufacturers, such as Coca-Cola (KO) bottlers and Frito Lay, a unit of PepsiCo (PEP), which deliver their products directly. The range and quality of services provided, variety of products offered, inventory sufficiency, reliability of deliveries, store location, and prices are factors that define competitive position. Genuine Parts (GPC), LKQ (LKQ), Core-Mark Holding Co (CORE), and Pool Corp (POOL) are prominent players. Rising costs and stiff competition have pushed wholesalers to offer more value-added services and to outsource core business processes. Companies focus on sales and earnings growth through new product offerings, product line expansion, market expansion, and a variety of margin enhancing and cost savings initiatives. Distributors often depend upon a few suppliers for the majority of purchases. For example, the two top suppliers of Core-Mark represented more than 40% of purchases in recent years. Quality and pricing of merchandise offered is strongly influenced by vendors and consumer demand for retail goods drives demand for wholesale distribution. The distributor industry has experienced a dramatic loss of power as retailers and manufacturers embrace consolidation. Wholesale distributors benefit from unusually high commodity price inflation, which has boosted revenue in recent periods. Technology advancement helps distributors reduce costs associated with order processing, inventory management, customer service, and administrative processes. However, online retailing, particularly in the entertainment market, has reduced the need for middlemen as manufacturers now deliver products directly to consumers’ homes. REVENUE GROWTH AND EARNINGS YIELD 250% 52-Week Range $27.85-$36.35 The distributor industry is comprised of companies that engage in the wholesale distribution of general merchandise and automobiles, excluding food, healthcare, technology, and capital goods. In addition to distributing products from manufacturers to retailers, distributors provide retailers with inventory management services, access to trade credit, and the option to place small quantity orders. Types of wholesale operations include merchant wholesalers, who take title to goods and then resell them, sales branches, which are maintained by manufacturing operations, and agents or brokers, who buy and sell merchandise for others. Wholesale distributors supply about half of the total in-store sales for convenience retail stores. FENX UN Revenue Growth (TTM) Market Capitalization $10.0 Billion INDUSTRY ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* -12.5% Beta NA FENX FA RA VO BL In economic recessions, slowdowns in sales trigger production cuts as businesses drop inventories to mirror sales thus constricting distribution revenue. As consumer spending returns and with it demand for wholesale services during an inventory rebuilding period distribution business pace expands. Ongoing consolidation, and cost-cutting initiatives may help future profitability. B RA VO LE -50% FA Revenue Growth (TTM) E UN -200% EDUC PEER GROUP: Distributors CORE LKQ POOL GPC DIT WEYS Ticker LKQ DIT POOL EDUC FENX WEYS CORE GPC 25% Earnings Yield (TTM) Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -10.7% and 233.3%. Companies with NA or NM values do not appear. Recent Company Name Price ($) LKQ CORP 32.34 AMCON DISTRIBUTING CO 101.90 POOL CORP 120.60 EDUCATIONAL DEVELOPMENT CO 10.05 FENIX PARTS INC 1.45 WEYCO GROUP INC 27.72 CORE MARK HOLDING CO INC 34.91 GENUINE PARTS CO 94.11 Market Cap ($M) 9,970 69 4,987 41 29 288 1,617 13,871 Price/ Earnings 20.86 14.23 33.59 19.71 NM 18.24 32.03 20.37 Net Sales TTM ($M) 9,005.40 903.52 2,601.99 96.32 129.13 287.15 11,860.80 15,527.09 Net Income TTM ($M) 488.08 5.01 154.87 2.10 -54.63 16.00 50.60 689.38 The peer group comparison is based on Major Distributors companies of comparable size. This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved. Report Date: June 4, 2017 PAGE 2 June 4, 2017 NASDAQ: LKQ LKQ CORP Sector: Consumer Goods & Svcs Distributors Source: S&P Annual Dividend Rate NA Annual Dividend Yield NA COMPANY DESCRIPTION LKQ Corporation, together with its subsidiaries, distributes replacement parts, components, and systems used in the repair and maintenance of vehicles in North America, Europe, and Taiwan. It operates in three segments: North America, Europe, and Specialty. The company distributes bumper covers, automotive body panels, lights, and automotive glass products, such as windshields; salvage products, including mechanical and collision parts comprising engines, transmissions, door assemblies, sheet metal products, lights, and bumper assemblies; scrap metal and other materials to metals recyclers; and brake pads, discs and sensors, clutches, steering and suspension products, filters, and oil and automotive fluids, as well as electrical products, including spark plugs and batteries. It also operates self service retail operations under the LKQ Pick Your Part name. In addition, the company distributes recreational vehicle appliances and air conditioners, towing hitches, truck bed covers, vehicle protection products, cargo management products, wheels, tires, and suspension products. It primarily serves collision and mechanical repair shops, new and used car dealerships, as well as retail customers. The company was founded in 1998 and is headquartered in Chicago, Illinois. LKQ CORP 500 West Madison Street, Suite 2800 Chicago, IL 60661 USA Phone: 312-621-1950 Fax: 312-621-1969 http://www.lkqcorp.com Beta NA Market Capitalization $10.0 Billion 52-Week Range $27.85-$36.35 Price as of 6/1/2017 $32.34 STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of LKQ shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock’s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE 5.0 Growth out of 5 stars weak Measures the growth of both the company's income statement and cash flow. On this factor, LKQ has a growth score better than 90% of the stocks we rate. strong 2.0 Total Return out of 5 stars weak Measures the historical price movement of the stock. The stock performance of this company has beaten 30% of the companies we cover. strong 4.0 Efficiency out of 5 stars weak Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 70% of the companies we review. strong 3.0 Price volatility out of 5 stars weak Measures the volatility of the company's stock price historically. The stock is less volatile than 50% of the stocks we monitor. strong 4.5 Solvency out of 5 stars weak Measures the solvency of the company based on several ratios. The company is more solvent than 80% of the companies we analyze. strong 0.5 Income out of 5 stars weak Measures dividend yield and payouts to shareholders. This company pays no dividends. strong THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved. Report Date: June 4, 2017 PAGE 3 June 4, 2017 NASDAQ: LKQ LKQ CORP Sector: Consumer Goods & Svcs Distributors Source: S&P Annual Dividend Rate NA Annual Dividend Yield NA Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 0.52 1.87 E 2.10 E Q2 FY17 2017(E) 2018(E) Market Capitalization $10.0 Billion 52-Week Range $27.85-$36.35 Price as of 6/1/2017 $32.34 FINANCIAL ANALYSIS LKQ CORP's gross profit margin for the first quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. The company managed to grow both sales and net income at a faster pace than the average competitor in its industry this quarter as compared to the same quarter a year ago. LKQ CORP has average liquidity. Currently, the Quick Ratio is 1.07 which shows that technically this company has the ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. During the same period, stockholders' equity ("net worth") has increased by 11.51% from the same quarter last year. Together, the key liquidity measurements indicate that it is relatively unlikely that the company will face financial difficulties in the near future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.TheStreetRatings.com. INCOME STATEMENT Net Sales ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil) Beta NA Q1 FY17 2,342.84 287.28 238.62 136.28 Q1 FY16 1,921.48 233.65 200.48 112.17 Q1 FY17 264.61 8,122.25 3,025.27 3,606.87 Q1 FY16 229.22 7,356.86 2,818.56 3,234.41 Q1 FY17 39.70% 12.26% 10.19% 1.11 6.00% 13.43% Q1 FY16 39.65% 12.15% 10.43% 1.00 5.82% 13.24% Q1 FY17 2.86 0.46 23.99 9.95 Q1 FY16 2.85 0.47 14.59 13.74 Q1 FY17 308 0.00 0.45 11.70 NA 2,265,390 Q1 FY16 307 0.00 0.37 10.55 NA 2,280,122 BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil) PROFITABILITY Gross Profit Margin EBITDA Margin Operating Margin Sales Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) Div / share EPS Book value / share Institutional Own % Avg Daily Volume 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved. Report Date: June 4, 2017 PAGE 4 June 4, 2017 NASDAQ: LKQ LKQ CORP Sector: Consumer Goods & Svcs Distributors Source: S&P Annual Dividend Rate NA Annual Dividend Yield NA RATINGS HISTORY Our rating for LKQ CORP has not changed since 4/3/2009. As of 6/1/2017, the stock was trading at a price of $32.34 which is 11.0% below its 52-week high of $36.35 and 16.1% above its 52-week low of $27.85. 2 Year Chart Beta NA Market Capitalization $10.0 Billion BUY: $28.81 Price/Earnings 1 2 3 premium $30 2015 4 5 LKQ 20.86 Peers 23.24 • Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. • LKQ is trading at a discount to its peers. Price/Projected Earnings From Buy To Buy RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS 3 43.83% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.08% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 26.10% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. 4 5 Price/Book 1 2 3 premium 4 5 Price/Sales 1 2 premium 3 4 5 Price to Earnings/Growth 4 5 discount 1 2 3 premium 4 5 discount LKQ 0.77 Peers 2.42 • Discount. The PEG ratio is the stock’s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. • LKQ trades at a significant discount to its peers. Earnings Growth 1 2 3 4 lower 5 higher LKQ 10.71 Peers 5.43 • Higher. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. • LKQ is expected to have an earnings growth rate that significantly exceeds its peers. Sales Growth discount LKQ 1.11 Peers 1.09 • Average. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. • LKQ is trading at a valuation on par with its industry on this measurement. 3 LKQ 14.71 Peers 24.41 • Discount. The P/CF ratio, a stock’s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. • LKQ is trading at a significant discount to its peers. discount LKQ 2.76 Peers 6.62 • Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. • LKQ is trading at a significant discount to its peers. 2 premium discount LKQ 15.40 Peers 20.50 • Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. • LKQ is trading at a discount to its peers. (as of 6/1/2017) Research Contact: 212-321-5381 Sales Contact: 866-321-8726 2 premium Price reflects the closing price as of the date listed, if available TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com 1 1 Price/CashFlow discount 2016 MOST RECENT RATINGS CHANGES Date Price Action 6/1/15 $28.81 No Change Price as of 6/1/2017 $32.34 VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of 23.24 for the Distributors industry and a discount compared to the S&P 500 average of 25.70. To use another comparison, its price-to-book ratio of 2.76 indicates a discount versus the S&P 500 average of 3.08 and a significant discount versus the industry average of 6.62. The current price-to-sales ratio is well below the S&P 500 average, but above the industry average. Upon assessment of these and other key valuation criteria, LKQ CORP proves to trade at a discount to investment alternatives within the industry. $40 $35 52-Week Range $27.85-$36.35 1 2 3 lower 4 5 higher LKQ 22.68 Peers 10.92 • Higher. A sales growth rate that exceeds the industry implies that a company is gaining market share. • LKQ has a sales growth rate that significantly exceeds its peers. DISCLAIMER: The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT® Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet Ratings. Copyright(c) 2006-2016. All rights reserved. Report Date: June 4, 2017 PAGE 5