Standard & Poor's Rate Pep Boys - Analyst Blog
20 Setembro 2012 - 1:24PM
Zacks
Standard & Poor's Ratings Services affirmed its corporate
credit rating of ‘B’ on Philadelphia-based auto parts supplier,
Pep Boys - Manny, Moe & Jack (PBY). The agency
also revealed its issue-level rating on the company’s debts.
S&P assigned a ‘BB-’ issue-level rating on the company’s
proposed six-year $200 million term loan. The recovery rating on
the term loan is '1,' which implies a higher (90% to 100%)
expectation of recovery for creditors in the event of any default
or bankruptcy.
The issue-level rating on the company’s existing senior secured
term loan due 2013 is ‘BB-’ with a recovery rating of ‘1.’
Meanwhile, the issue-level rating on Pep Boys’ $200 million senior
subordinated notes due 2014 is ‘B’ with a recovery rating of ‘3,’
which indicates the agency’s expectation for a meaningful recovery
(50% to 70%).
Overall, S&P ratings on the debt depict a “vulnerable” business
risk profile and an “aggressive” financial risk profile of the
company. The agency believes the company has a weak competitive
position, given its competitively disadvantaged store base. It is
also worried about weak industry conditions which could hamper Pep
Boys’ service and tire center (STC) expansion plan, aimed at
reducing average store size and increasing service- and
maintenance-related revenues.
Pep Boys supplies tires, batteries, new and remanufactured parts
for vehicles, chemicals and maintenance items, fashion, electronic,
and performance accessories. It also provides non-automotive
merchandise such as generators, power tools and personal
transportation products.
In the second quarter of the year ended July 28, 2012, the company
saw more than six-fold jump in profits to $76.7 million or $1.43
per share (excluding merger termination fees and severance costs)
ended July 28, 2012 from $11.9 million or 22 cents (excluding asset
impairment charge, acquisition related expenses and benefit from
the release of state tax valuation allowances) in the comparable
quarter of prior year. With this, the automotive parts supplier’s
profits drove past the Zacks Consensus Estimate by a significant
margin of $1.28 per share.
Revenues in the quarter grew marginally by 0.6% to $525.7 million
from $522.6 million a year ago. It was in line with the Zacks
Consensus Estimate. The revenue growth was mainly driven by the
improvement in the company’s service business.
The company believes strong industry fundamentals driven by
consistent demand for maintenance and repair services will drive
its earnings. However, rising gas prices is expected to mar its
sales.
Further, the company intends to improve its debt structure. It aims
to reduce long-term debt by approximately $100 million, settle its
interest rate swap, extend its maturities and reduce its overall
interest expense.
The company, which competes with O’Reilly Automotive
Inc. (ORLY), AutoZone Inc. (AZO) and
CarMax Inc. (KMX), currently retains a Zacks #3
Rank, which translates to a short-term rating of Hold.
AUTOZONE INC (AZO): Free Stock Analysis Report
CARMAX GP (CC) (KMX): Free Stock Analysis Report
O REILLY AUTO (ORLY): Free Stock Analysis Report
PEP BOYS M M &J (PBY): Free Stock Analysis Report
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