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BREXIT Could Mean Trouble for LKQ

Stock (Symbol)

LKQ Corp (LKQ)

Stock Price

$33

Sector
Food & Necessities
Data is as of
June 20, 2016
Expected to Report
Jul 27 – Aug 1
Company Description
LKQ_carsLKQ Corporation (LKQ) is a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, as well as specialty vehicle products and accessories. The company distributes a range of products to collision and mechanical repair shops, including aftermarket collision and mechanical products, and recycled collision and mechanical products. It operates through four segments: Wholesale – North America; Europe; Specialty, and Self Service. Its wholesale automobile product operations sell five product types (aftermarket, recycled, remanufactured, refurbished and original equipment manufacturers (OEMs) parts). The European wholesale operating segment includes Euro Car Parts Holdings Limited (ECP). The Specialty operating segment includes Keystone Automotive Holdings, Inc. (Keystone Specialty). The Company’s self service segment retail operations sell parts from older cars and light-duty trucks directly to consumers. Source: Thomson Financial
Sharek’s Take
David SharekBREXIT could mean trouble for LKQ Corp (LKQ), here’s why: LKQ is in the salvage business. The company purchases junk cars, strips the car of good parts, refurbishes these parts, then packages and sells these parts to auto parts stores, or direct to consumers through its own auto parts stores. The company has been expanding into Europe — especially Great Britain — and with BREXIT taking a chunk out of England’s currency, that could cause LKQ to miss profit estimates. It’s too bad BREXIT is taking away certainty from this stock, because the numbers look good. LKQ recently hired a company to make it more efficient and this has resulted in a more streamlined delivery process with GPS in delivery vehicles, which in turn will save the company money and improve delivery times. Low gas prices help as people are driving more and shipping costs are reduced. LKQ also just acquired two more companies in Pittsburgh Glass Works, a leading supplier of automotive glass, and Rhiang-Inter, a European distributor of auto parts. These charts were compiled just before BREXIT with the stock at $33. After BREXIT LKQ fell slightly below $30 and has since recovered to $32. I would like to pick up these shares if they were to fall to around $26, which could happen if LKQ misses due to F/X as the British Pound has been getting pounded.
One Year Chart
LKQ_2016_Q2Last qtr LKQ had 17% profit growth on a 8% rise in sales. The company beat by a penny, and estimates increased across the board. The big news is profit Estimates for the next 4 qtrs are now set to be 23%, 38%, 38% and 24%. That’s great growth and with a P/E of 18 this stock is priced reasonably. Two qtrs ago the Estimated Long-Term Growth Rate jumped from 20% to 27% but I still consider this to be a 20% grower.
Fair Value
LKQ_2016_Q2_PHMy Fair Value on this stock is 20x earnings, or $36 a share. This stock has a history of hanging around a certain price point for months or even years, thus I’m going to be patient in waiting to buy.
Bottom Line
LKQ_2016_Q2_10yrLKQ is growing through acquisitions as well as organically, but there are other pieces to this puzzle such as scrap metal prices, gross profit margins, foreign exchange rates and gas prices. Overall this stock has been a winner, rising 21% a year the past decade as profits grew 25% a year. But with BREXIT there’s now a cloud hanging over the shares, and I hope the stock falls into the high-$20s so I can buy low.
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