Shares of Commonplace Motor Merchandise, Inc. SMP, one of many main producers, distributors and entrepreneurs of premium automotive alternative elements, have plunged 19.7% yr to this point (YTD), underperforming the trade in addition to its friends like Dorman Merchandise, Inc. DORM and Douglas Dynamics, Inc. PLOW.
YTD Worth Comparability
Picture Supply: Zacks Funding Analysis
Commonplace Motor thrives on sustained demand for automotive elements and acquisition and steadiness sheet power. Nonetheless, rising capital expenditure and inflation on uncooked materials prices, labor and transportation bills cloud its prospects.
The corporate’s shares have witnessed a double-digit proportion dip YTD. Must you purchase it, or is it a dangerous wager? Let’s discover out.
Components Driving Commonplace Motor’s Development
Sustainable Demand for Automotive Elements: The aftermarket is experiencing constructive elementary developments, pushed by elements like a rising and getting old car inhabitants, a resurgence in historic driving mileage and the excessive value of recent autos. These developments are anticipated to maintain ongoing demand for automotive elements, notably in non-discretionary classes like these supplied by Commonplace Motor. For 2024, the corporate now expects gross sales development to be low- to mid-single digit in contrast with the earlier forecast of flat to low-single digit.
Acquisition Energy: The upcoming acquisition of Nissens, anticipated to shut by the top of 2024, will assist SMP develop its geographic presence and set up a big world development platform. Nissens has annual revenues of about $260 million with a mid-teens EBITDA margin.
Price Containment Effort: To deal with value pressures, SMP launched an early retirement program within the second quarter. This system is predicted to yield $10 million in annualized financial savings as soon as totally carried out. One-time severance prices are roughly $6 million, with $2.6 million incurred within the second quarter and $3.1 million anticipated within the second half of 2024.
Potential Enhancement in Capability & Deliveries: The corporate has efficiently initiated the primary section of shipments from its new distribution heart (DC) and is optimistic concerning the anticipated advantages upon full implementation. This growth will supply SMP elevated capability to help future development, scale back danger via a multi-point distribution technique, and improve product supply occasions in particular geographical areas.
Steadiness Sheet Energy and Investor-Pleasant Strikes: Commonplace Motor’s long-term debt-to-capital ratio of 0.24 is decrease than the trade’s 0.35, giving it sufficient monetary flexibility to faucet into development alternatives. In 2023, web money supplied by working exercise totaled $144.3 million in contrast with web money utilized by working exercise of $27.5 million in 2022. The corporate repurchased $10.4 million of shares within the first half of 2024. It elevated dividends thrice within the final 5 years, with an annualized development of 5.38%.
What’s Dragging SMP Inventory Down?
Whereas the above-mentioned tailwinds bode effectively for Commonplace Motors, the corporate is grappling with near-term challenges. Because the automotive trade shifts from inner combustion engines to electrical autos, Commonplace Motor faces rising R&D and capital expenditure prices. Moreover, the corporate has skilled rising SG&A bills as a proportion of revenues, which climbed to 21.5% within the final reported quarter as a result of inflation and factoring applications.
What Do SMP’s Estimates Point out?
The Zacks Consensus Estimate for SMP’s 2024 gross sales and EPS estimate implies year-over-year development of 4.39% and three.08%, respectively. The Zacks Consensus Estimate for the corporate’s 2025 gross sales and EPS estimate implies year-over-year development of three.08% and 13.95%, respectively. Within the final seven days, the corporate has seen its 2024 EPS estimates rise. In the meantime, estimates for 2025 EPS have moved down.
Picture Supply: Zacks Funding Analysis
Commonplace Motor Inventory Valuation
SMP is buying and selling at a reduction in contrast with the Zacks Automotive – Substitute Elements trade. Its ahead 12-month Worth/Gross sales of 0.48X is decrease than the trade’s 0.75X and its personal five-year median of 0.73X.
Picture Supply: Zacks Funding Analysis
Conclusion
Though this Zacks Rank #3 (Maintain) firm grapples with near-term headwinds like rising expenditure on rising applied sciences, traders who already maintain shares ought to keep their place, as the corporate’s elementary strengths and development drivers stay strong. You possibly can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Standard Motor Products, Inc. (SMP) : Free Stock Analysis Report
Douglas Dynamics, Inc. (PLOW) : Free Stock Analysis Report
Dorman Products, Inc. (DORM) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
