On Oct 10, 2014, we issued an updated research report on Standard Motor Products Inc. (SMP). This Zacks Rank #3 (Hold) stock reported a negative 3.8% surprise in the last quarter.
Standard Motor reported an 8.6% rise in adjusted earnings per share to 76 cents in the second quarter of 2014. However, earnings missed the Zacks Consensus Estimate of 79 cents. Meanwhile, profits went up 8.4% to $17.7 million from $16.4 million in the year-ago quarter.
Standard Motor enjoys competitive advantage owing to its brand recognition and sizeable customer base. Well recognized brand names help in expanding the consumer base further.
Standard Motor is also poised to benefit from the expansion of its business through acquisitions. In Apr 2014, the company acquired certain assets and liabilities of Annex Manufacturing, a distributor of a wide range of temperature control products for $11.5 million. The company expects the acquisition to boost future earnings, excluding the one-time transition costs.
Further, Standard Motor announced a 50/50 joint venture with Gwo Yng Enterprises – a China-based manufacturer of air conditioning accumulators, filter driers, hose assemblies and switches. The company will leverage the Gwo Yng collaboration to penetrate into the rapidly growing Chinese Temp Control market.
However, Standard Motor is facing the brunt of the competitive automotive aftermarket. The company has to compete on the basis of price, product quality and customer service. The price competition prevailing in the market mars the profit margin of the company substantially.
In addition, a large portion of Standard Motor’s sales are derived from major customers like NAPA Auto Parts, O'Reilly Automotive Inc. (ORLY) and Advance Auto Parts Inc. (AAP). Thus, the loss of any key customer could significantly affect the company’s results. Moreover, rising demand for fuel-efficient vehicles or electric vehicles can affect aftermarket sales and thereby the long-term performance of Standard Motor.
Investors interested in automobile stocks can also consider Genuine Parts Company (GPC), which carries a Zacks Rank #2 (Buy).
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