On Dec 19, 2014, we issued an updated research report on Standard Motor Products Inc. (SMP). This Zacks Rank #4 (Sell) stock had reported a negative earnings surprise of 9.8% in the last quarter.
Standard Motor reported a 6.3% drop in adjusted earnings per share to 74 cents in the third quarter of 2014 from 79 cents in the year-ago quarter. Earnings also missed the Zacks Consensus Estimate of 82 cents. Total revenue decreased 2.7% to $257 million, missing the Zacks Consensus Estimate of $266 million.
Standard Motor possesses a strong competitive advantage due to its brand recognition and sizeable customer base. Well-recognized brand names help in expanding the consumer base further. In addition, Standard Motor is not significantly exposed to the cyclical nature of the automotive industry since it is focused on the aftermarket, where it is a leading player. Demand for repair products is expected to rise, due to growth in the used-vehicles market and an increase in the average age of automobiles in the U.S.
Standard Motor is also expanding its business through acquisitions. In the past three years, the company has made eight acquisitions.
Standard Motor has a strong financial position and promises long-term business prospects. During the first nine months of 2014, the company repurchased 269,366 shares for $9.5 million. During Oct 2014, the company repurchased 14, 918 additional shares for $0.5 million. Moreover, in Feb 2014, Standard Motor announced an 18.2% increase in its quarterly dividend to 13 cents per share from 11 cents paid earlier. These capital deployment measures boost shareholder value.
However, Standard Motor is adversely affected by the competitive nature of the automotive aftermarket. The company has to compete on the basis of prices, product quality and customer service. Price competition in the market mars the company’s profit margins. Moreover, Standard Motor’s sales are largely dependant on some major customers. Thus, any change in demand from them will adversely affect the company’s results.
Key Picks from the Sector
Investors interested in the auto industry could consider better-ranked stocks like Allison Transmission Holdings, Inc. (ALSN), Meritor, Inc. (MTOR) and STRATTEC Security Corporation (STRT). All these stocks have a Zacks Rank #1 (Strong Buy).
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