We reiterate our Outperform recommendation on Standard Motor Products Inc. (SMP), which is one of the nation’s leading manufacturers, distributors and marketers of automotive replacement parts. The company presently operates through two primary segments: Engine Management and Temperature Control.
Standard Motor released its 2011 first quarter financial results on May 04, 2011. The company earned a net income of $7.1 million or $0.31 per share from continuing operations, more than doubling the earnings of $3.1 million or $0.14 per share in the first quarter of 2010.
Consolidated net sales in the quarter grew 22.7% to $220.2 million, driven by the increase in customer inventories and pre-season ordering in the Temperature Control business.
The company saw significant improvements in the first quarter owing to its successful cost control initiatives and strong demand for products from all channels of distribution. These strategies are expected to reap benefits for the company in the upcoming quarters as well.
In addition, Standard Motor is continuously upgrading its existing product line with new products. The company recently introduced a new line of original equipment (OE) replacement stators, rotors, solenoid repair kits and other starting and charging system parts for almost all types of models, from old Evolution engines to the latest Big Twin engines. The company has started manufacturing low emission hybrid systems, CNG and LPG fueled vehicles and high-flow injections.
Standard Motor’s recent acquisition of the Engine Controls Business of BLD Products Ltd., a subsidiary of Michigan-based Qualitor Inc. is also aimed at utilizing BLD Products’ wide product portfolio and broad customer base to expand its business.
Moreover, the company’s amended credit facility agreement with General Electric Capital Corporation, a part of General Electric Co. (GE) is expected to facilitate potential investments by lowering the company’s borrowing cost.
Standard Motor has huge prospects going forward. The company also enjoys a strong competitive advantage due to its brand recognition and customer base. The major competitive advantages of the company are a trained sales force, extensive product range, sophisticated parts-cataloging systems and an effective inventory management.
As result, the shares of Standard Motor Products Inc. are maintaining a Zacks #1 Rank, which translates into a short-term Strong Buy rating.
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