Most companies will begin to see very favorable comparisons starting in the second quarter of '07. In addition, the significant number of deferrals in 2006 should translate into demand for auto services this year. Stability in gas prices also should be a key factor, as it provides consumers with more flexibility in allocating dollars toward automotive needs, and boosts the number of miles driven.
More importantly, however, we think the majority of the companies we follow have been disciplined on costs. As we move through 2007, there could be greater-than-expected operating leverage because of a pickup in sales, as well as tighter expense controls. In our opinion, 2006 was a lost year in terms of growth. We believe patient investors, those looking out six to 12 months, are likely to find good buying opportunities in the aftermarket sector for 2007.
Notes:
Stock Price and Operating Metrics as of 1/2/07. TEV = Total Enterprise Value (Market Cap. + Debt – Cash). EBITDA = Earnings Before Interest Taxes Depreciation and Amortization. DSO = Days Sales Outstanding. DPO = Days Payable Outstanding. Forward estimates are consensus as reported by Bloomberg. YTD = Year to Date. CY = Calendar Year. LTM = Last Twelve Months.
SOURCE: CAPITALLQ, BLOOMBERG.
Disclosures:
BB&T Capital Markets makes a market in the securities of Monro Muffler Brake, Inc. and O'Reilly Automotive Inc. BB&T Capital Markets expects to receive or intends to seek compensation for investment banking services from Monro Muffler Brake, Inc. and O'Reilly Automotive Inc. in the next three months. An affiliate of BB&T Capital Markets received compensation from Monro Muffler Brake, Inc. and O'Reilly Automotive Inc. for products or services other than investment banking services during the past 12 months.