The analyst reduced EPS estimates to slightly above consensus levels ahead of LKQ’s February release of Q4 results.
The analyst views Q4 North America P&S organic sales as likely still healthy given pricing benefits and likely double-digit Boyd Group comparable sales.
While Vehicle Miles Driven / U.S. Gas Consumption have moderated to approximately flat y/y, LKQ comparable structurally benefit from mid-single-digit y/y 4QTD PPI for auto parts manufacturing, improving Taiwanese aftermarket parts availability, and above-market fill rates driven by salvage/recycled inventory, the analyst said.
The analyst calculates Q4 gross interest expense closer to $29 million. Given LKQ’s recently amended revolver facility and accounting for current forward rates, the analyst estimates FY23 interest expense of $125 million, versus the Street at $85 million.
European FX trends were favorable versus late-October views and prior guidance, added the analyst.
Similarly, the analyst’s model is now updated to reflect (minor) sequential changes in steel/precious metals prices.
Trimmed estimates notwithstanding, the analyst believes the stock still bullishly implies asymmetrically low assumptions for LT sales growth.
LKQ has demonstrated an ability to get price in its core North America P&S business, has retained profits from steel and precious metal inflation to increasingly become a true inflation hedge, said the analyst.
However, the above factors, the analyst remarks, may be overshadowed in the short-term by soft U.S. gasoline consumption demand data in the U.S. and geopolitical tensions in Europe.
Price Action: LKQ shares are trading higher by 0.19% at $58.11 on the last check Friday.
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