Barrington Research analyst Gary Prestopino maintained a bullish view on the S&P 500 (SPX) stock, LKQ Corporation (NASDAQ:LKQ), despite the company reporting weaker-than-expected earnings for the first quarter of Fiscal 2024. The disappointing results dragged down LKQ stock by 14.8% on April 23.
The five-star analyst maintained his Buy rating and $60 (44.1% upside) price target on LKQ stock. However, Prestopino reduced the adjusted earnings estimate for FY24 to $3.90 per share from $4.05 per share. In the past year, LKQ shares have lost 27.2%.
Prestopino ranks 52 out of more than 8,700 analysts ranked on TipRanks. He also boasts an attractive 27.3% average return per rating in the past year, with a success rate of 57%.
LKQ’s Q1 2024 Results
LKQ offers alternative and specialty parts to repair and accessorize automobiles and other vehicles. It has a foothold in North America, Europe, and Taiwan.
The company posted adjusted earnings of $0.82 per share, down 21.2% year-over-year and short of the consensus of $0.95 per share. At the same time, Q1 revenue rose 10.6% year-over-year to $3.70 billion but missed the consensus of $3.77 billion. The company cited softer demand in the Wholesale – North America segment for the poor results.
Prestopino noted that the difference between the actual results and his expectations was due to the company’s North American operations, reflecting the impact of warm winter weather throughout the U.S.
Meanwhile, LKQ repurchased $30 million worth of shares during the quarter and announced a $0.30 per share quarterly dividend for the second quarter. LKQ offers a dividend yield of 2.35%, significantly higher than the consumer cyclical sector average of 0.992%.
LKQ’s Outlook
Based on the expected recovery from Q1’s underperformance, LKQ maintained its guidance for FY24 adjusted earnings between $3.90 and $4.20 per share. Additionally, the company continues to forecast free cash flow of $1 billion for the full year. However, LKQ lowered its organic revenue growth outlook for parts and services to the range of 2.5% to 4.5% from 3.5% to 5.5%. It maintained the adjusted EPS full-year outlook but lowered the GAAP EPS guidance, citing higher-than-anticipated restructuring and transaction-related expenses.
Prestopino highlighted that in North America, the company ramped up the rationalization of the FinishMaster store network, acquired last year as part of the Uni-Select deal. LKQ has consolidated 99 FinishMaster branches so far, including 65 in Q1 2024. Through this initiative, the company boosted its previously estimated three-year synergies from the acquisition to $65 million from $55 million.
LKQ also divested its Slovenia business and signed an agreement to sell its Bosnia operations as part of its plan to exit businesses that don’t align with its long-term strategy and financial return goals.
Is LKQ a Good Stock to Buy?
Analysts at Baird and Stifel also reiterated a Buy rating on LKQ after the Q1 print. With five unanimous Buy ratings, LKQ stock commands a Strong Buy consensus rating on TipRanks. Furthermore, the average LKQ Corp. price forecast of $63 implies 51.3% upside potential from current levels.
Key Takeaways
LKQ may have missed the earnings expectations in Q1 2024, but the company hopes to recover the lost revenues in Q2 FY24, as guided by the management. Moreover, analysts remain optimistic about the stock’s trajectory despite the current weakness. The high share price appreciation potential makes LKQ a stock worth considering.
