GPC Stock Be A Winner As inflation Hits Auto Repair

At first glance, there was nothing too remarkable about the Genuine Parts (NYSE:GPC) earnings report. The auto parts company gave a mixed report with earnings per share (EPS) coming in slightly higher than analysts’ expectations and revenue coming in slightly lower.   

But what investors shouldn’t be too quick to ignore is the year-over-year numbers. The $5.78 billion in revenue was a tick above the same quarter in 2023. And earnings of $2.22 were comfortably higher than the $2.14 it delivered in the 2023 first quarter.   

This is coming at a time when many analysts are forecasting an earnings recession. Plus, many companies that rely on the consumer to open their wallets are expected to have difficult comparisons to last year. So why did Genuine Parts beat these expectations and is this growth sustainable?   

The Reason Why Lagging Indicators Matter 

On April 10, investors began to analyze the March Consumer Price Index (CPI) data. The report indicated a higher-than-expected inflation rate, signaling that inflation was accelerating more than anticipated. The CPI is often viewed as a lagging indicator because it reflects past events. 

Nonetheless, the earnings report from Genuine Parts illustrates how the CPI can impact individual stocks both positively and negatively. While the company faces inflationary pressures in its input costs, particularly in freight and labor, a specific CPI category—Motor Vehicle Parts and Equipment—showed a reading of 179.766. This indicates that auto parts companies have been successful in passing their increased costs onto consumers. 

This backdrop gave investors reasons to expect solid earnings from Genuine Parts despite the challenging economic environment. Furthermore, the company reaffirmed its 2024 guidance, with a notable adjustment: it raised its earnings per share forecast from a range of $9.70 to $9.90 to $9.80 to $9.95. The lower end of this updated range represents a 5% year-over-year increase. 

A Rising Tide That Lifted The Sector 

The solid earnings report raised expectations and, for now, the share price of other auto parts suppliers. AutoZone (NYSE:AZO), Advanced Auto Parts (NYSE:AAP), and O’Reilly Automotive (NASDAQ:ORLY) which were all up over 1% the day after GPC reported.  

Taking A Position In GPC Stock 

On a day when stocks struggled to find momentum, shares of Genuine Parts Company (GPC) saw an uptick of over 1.3%. This rise comes as many analysts are revising valuations based on anticipated lower earnings. Since the earnings release, at least three analysts have increased their price targets for GPC, all of which now exceed the consensus estimate. This suggests potential high single-digit growth in the stock price. 

Currently priced at 16.7 times forward earnings, Genuine Parts is emerging as a compelling value proposition, especially when considering the company’s robust dividend history. Genuine Parts, a recognized Dividend King, has raised its dividend for an impressive 69 consecutive years. Although the 2.46% yield may not seem particularly high, the stock maintains a 42% payout ratio, and the $4.00 annual dividend per share is comfortably supported by the company’s earnings.