Morningstar Report on Advanced Auto Parts Inc. and O’ Reilly Automotive Inc.

Morningstar Report on Advanced Auto Parts Inc. and O’ Reilly Automotive Inc
By
Advanced Auto Parts
According to Akbari (2021, a)), the firm has a favorable view. Fiscal 2021 could be challenging due to several factors: pandemic, poor winter season, and time needed for optimization initiatives to settle in. In the longer run, the company is expected to take considerable time to reach its full potential, as economic normalcy will take time and nonlinear turnaround will increase volatility. Therefore, investors are suggested to monitor for identifying future buying opportunities. While the company has trailed its peers in terms of profitability, however, its turnaround can lead to improved performance as the business has a balanced focus on the professional as well as the DIY segment. This associated with cost advantage (due to the firm's scope, if it leverages the network of large retailers) and brand value can become a sustainable competitive advantage. The turnaround is a possibility as the industry conditions are improving and differential service levels (convenience, part availability, and in-store services) can result in strong brand building. The company is expected to grow at 2% in the first half of 2021 and then achieve stable growth of 3-4% as management plans to opens 100 warehouses in 2021 (Akbari, 2021, a)).
Fair Value: The fair value of the company has increased from $180 per share to $184, mainly attributable to strong sales in the fourth quarter.
Figure 1: Fair Value for AAP (Source, Akbari, 2021, a))
As observed in the above figure, the price/fair value has generally been around 1.00, which means that the share is fairly valued. However, there have been instances when it is was overva...