ORLY O Reilly Automotive Inc

We are reiterating our Outperform recommendation on Standard Motor Product Inc. (SMP). The leading manufacturer and distributor of automotive replacement parts continue to benefit from strong brand recognition and a less cyclical auto and auto parts industry.

Standard Motor, in the third quarter of 2012, reported a 23.7% growth in adjusted earnings per share to 73 cents from 59 cents in the year-ago quarter, surpassing the Zacks Consensus Estimate by 9 cents. Profits surged 22.6% to $16.8 million from $13.7 million in the corresponding quarter last year.

Total revenues increased 16.8% year over year to $276 million, beating the Zacks Consensus Estimate of $258 million. The growth was attributable to the positive impact from the company’s recent acquisitions and strong performance of its Temperature Control segment.

Standard Motor benefits from its strong brand recognition and wide customer base. The company distributes products under Standard, Blue Streak, BWD Automotive and Niehoff brand for its Engine Management division. Under Temperature Control division, it distributes products under Hayden and Four Seasons brand. It also distributes products under private brands like CARQUEST and NAPA Auto Parts for both the segments.

With greater focus on aftermarket, the company is not significantly exposed to the cyclical automotive industry. The company is expected to benefit from the rising demand of repair products due to the improved used vehicles market, increase in the number of automobiles on the road and rise in the average auto age to 10.8 years in the U.S.

In addition, the company will reap the benefits from the recent acquisition of BLD, Forecast Trading and Compressor Works. The acquisition will enhance its revenues and reduce the costs of products by further emphasizing on low cost regions.

However, Standard Motor faces challenges from concentrated customer base. The top five customers including Advance Auto Parts Inc. (AAP) and O’Reilly Automotive Inc. (ORLY) accounts for more than 10% of the company’s sales. Any fluctuation may have an adverse effect on the company’s results.

Our Outperform recommendation on the stock is backed by a Zacks #1 Rank, which translates into a short-term (1 to 3 months) Strong Buy rating.

 
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