On Thursday, RBC Capital updated its outlook on Advance Auto Parts , Inc. (NYSE: NYSE:AAP), raising the price target to $68 from the previous $47 while maintaining a Sector Perform rating on the stock. The firm's analyst cited the new management's understanding of the strategies required to reclaim market share and enhance profit margins as the reason for the adjustment.
The management of Advance Auto Parts is reportedly on track to achieve approximately $150 million in annualized cost savings in 2024, with a net of $100 million after reinvestments. This progress comes as the company moves past a range of one-time costs incurred in 2023, setting a favorable stage to meet its financial guidance.
The analyst maintained the forecast for fiscal year 2024 comparable sales growth at 1%, but anticipates improved gross margins as the company overcomes one-time inventory-related expenses. This is expected to result in earnings per share (EPS) of $3.82, an increase from the previously estimated $3.28. Additionally, the analyst introduced projections for fiscal year 2025, expecting comparable sales to grow by 1.3% and EPS to reach $4.52.
The revised $68 price target is based on an estimated 15 times the fiscal year 2025 EPS projection of $4.52. The analyst believes that unlocking the full potential value for Advance Auto Parts hinges on the rate and extent of margin growth beyond 2024.
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