Advance Auto Parts (AAP): Evaluating Valuation After First Brands Bankruptcy and Growing Supply Chain Concerns

Advance Auto Parts (AAP) is under the microscope as First Brands, one of its main suppliers, recently filed for Chapter 11 bankruptcy. Investors are now worried because required funds failed to make it to partner companies, raising fresh questions about supply chain stability and the company’s financial footing.

See our latest analysis for Advance Auto Parts.

Shares of Advance Auto Parts have been whipsawed lately, jumping 9.24% in a single day after the First Brands bankruptcy news but still nursing a 13.38% decline over the past three months. While the one-year total shareholder return sits at an impressive 40.05%, long-term holders remain well underwater due to a 65.81% total loss over three years. This highlights how recent momentum is a sharp reversal from deeper challenges.

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With conflicting signals from recent momentum and deeper operational concerns, investors are now left to wonder: is Advance Auto Parts trading at a bargain, or has the market already accounted for all the upside ahead?

Most Popular Narrative: Fairly Valued

The narrative's fair value estimate for Advance Auto Parts lands within 2% of the last closing price, signaling a consensus that the stock is trading near its worth. This view is informed by ongoing operational changes and strategic initiatives that could be significant catalysts for future returns.

“Advance Auto Parts is executing a 3-year strategic plan focused on improving profitability. Initiatives such as optimizing its asset base and divesting noncore operations are expected to deliver adjusted operating margins of approximately 7% by 2027. This could enhance net margins and earnings.”

Read the complete narrative.

Want to know what’s fueling this price target? This narrative is driven by bold bets on operating margin expansion, elusive profit targets, and ambitious sales recovery. The linchpin for these forecasts is a transformation plan that only a few in retail have ever pulled off. Don’t miss the extraordinary forecast details behind this razor-close valuation.

Result: Fair Value of $53.20 (ABOUT RIGHT)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent store closures and weaker-than-expected sales trends may still disrupt profitability improvements and challenge the company’s turnaround narrative.

Find out about the key risks to this Advance Auto Parts narrative.

Another View: Discounted Cash Flow Suggests Undervaluation

While the market and analysts see Advance Auto Parts as fairly priced using traditional ratios, a fresh look using our SWS DCF model tells a different story. The DCF approach values the company at $75.33 per share, which is about 28% higher than the recent share price. Could the market be underestimating its recovery potential?

Look into how the SWS DCF model arrives at its fair value.

Build Your Own Advance Auto Parts Narrative

If you think there is a story the consensus has missed, or you prefer to investigate the numbers firsthand, crafting your own assessment takes just a few minutes. Do it your way

A great starting point for your Advance Auto Parts research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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