Despite macroeconomic concerns, the United States' auto sales will likely rise due to pent-up demand. So, quality auto stocks BorgWarner Inc. (BWA), AutoZone, Inc. (AZO), and O’Reilly Automotive, Inc. (ORLY) could be wise additions to your portfolio.
In August, the number of new vehicles sold in the U.S. was 1,341,169 units, up 16.2% from August 2022 and 2.0% from July 2023. As supply chains increasingly stabilize, the increase in new car sales in August suggests a comeback in the automotive sector.
Also, the auto parts market is estimated to grow at a CAGR of 3.6% until 2027. Factors such as technical innovation, digitization of automobile repair and maintenance services, and demand for aftermarket services drive market growth.
In addition, the automotive industry is expected to increase at a 6.9% CAGR until 2030, reaching $6.07 trillion. Rising demand for high-end passenger automobiles, urbanization, and increased infrastructure spending in the economy are propelling the automotive market forward.
With these favorable trends in mind, let’s delve into the fundamentals of the three best Auto Parts stocks, beginning with number 3.
Stock #3: BorgWarner Inc. (BWA)
BWA provides solutions for combustion, hybrid, and electric vehicles worldwide. The company operates through four segments: Air Management; E-Propulsion & Drivetrain; Fuel Injection; and Aftermarket.
BWA’s trailing-12-month ROTC of 8.70% is 43.8% higher than the industry average of 6.05%. Its trailing-12-month ROTA of 5.48% is 42.3% higher than the 3.85% industry average.
BWA’s net sales increased 20.2% year-over-year to $4.52 billion for the second quarter that ended June 30, 2023. The company’s gross profit increased 21.9% year-over-year to $868 million.
In addition, its operating income increased 40.8% year-over-year to $383 million. Also, its adjusted EPS came in at $1.35, representing an increase of 28.6% over the year-ago period.
Analysts expect BWA’s revenue to increase 8.9% year-over-year to $15.69 billion for the year ending December 2024. Its EPS is expected to increase 15.8% year-over-year to $4.39 for the same period. It has surpassed EPS estimates in three of the four trailing quarters. The stock has gained 24.5% over the past year to close the last trading session at $40.55.
BWA’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
BWA has a B grade for Value. Within the A-rated Auto Parts industry, it is ranked #34 out of 60 stocks. Click here for the additional POWR Ratings for Stability, Sentiment, Growth, Momentum, and Quality for BWA.
Stock #2: AutoZone, Inc. (AZO)
AZO is a retailer and distributor of automotive replacement parts and accessories. The company offers various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.
AZO’s trailing-12-month EBITDA margin of 22.41% is 106.2% higher than the industry average of 10.87%. Its trailing-12-month gross profit margin of 51.57% is 46% higher than the industry average of 35.32%.
For the third quarter that ended May 6, 2023, AZO’s net sales increased 5.8% year-over-year to $4.09 billion. Its gross profit rose 6.9% from the year-ago value to $2.15 billion. The company’s net income grew 9.3% and 17.5% from the prior-year quarter to $647.72 million and $34.12 per share, respectively. Also, its operating profit increased 9.3% from the year-ago value to $858.48 million.
Street expects AZO’s revenue to increase 5.5% year-over-year to $18.38 billion for the year ending August 2024. Its EPS is expected to increase 11.5% year-over-year to $146.73 for the same period. It has surpassed the EPS estimate in all four trailing quarters. Over the past year, the stock has gained 20.5% to close the last trading session at $2556.06.
AZO’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #29 in the same industry. It has an A grade for Quality and a B for Sentiment. To see additional AZO’s ratings for Growth, Value, Momentum, and Stability, click here.
Stock #1: O’Reilly Automotive, Inc. (ORLY)
ORLY is a specialty retailer of automotive aftermarket parts, tools, supplies, equipment, and accessories. Its offerings include new and remanufactured automotive hard parts and maintenance items, such as alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, fuel pumps, etc.
ORLY’s trailing-12-month net income margin of 14.84% is 244.7% higher than the 4.30% industry average. Its trailing-12-month levered FCF margin of 12.87% is 153.5% higher than the 5.08% industry average.
ORLY’s sales increased 10.8% year-over-year to $4.07 billion in the second quarter (ended June 30, 2023), while its gross profit rose 10.7% from the year-ago value to $2.09 billion.
The company’s net income and EPS grew 8.8% and 16.5% from the prior-year quarter to $627.37 million and $10.32, respectively.
The consensus revenue estimate of $15.65 billion for the year ending December 2023 represents an 8.6% increase year-over-year. Its EPS is expected to grow 13.1% year-over-year to $37.83 for the same period. It surpassed EPS estimates in all the four trailing quarters. ORLY’s shares have gained 34.6% over the past nine months to close the last trading session at $945.53.
It’s no surprise that ORLY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Quality and a B for Stability and Sentiment. It is ranked #22 in the same industry.
Beyond what is stated above, we’ve also rated ORLY for Growth, Value, and Momentum. Get all ORLY ratings here.
What To Do Next?
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ORLY shares were trading at $942.23 per share on Wednesday morning, down $3.30 (-0.35%). Year-to-date, ORLY has gained 11.63%, versus a 17.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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