The Zacks Automotive - Retail and Wholesale - Partsindustry is set to benefit from the rising average age of the vehicles that require frequent servicing and replacement of auto parts.Players like AutoZone, Inc. AZO, Genuine Parts Company GPC and Advance Auto Parts, Inc. AAP are entering into new markets through strategic acquisitions and expansion of mega hubs to grow their market share and are investing in digital platforms to reach a broader audience, driving higher profitability.

Industry Overview

The Zacks Automotive – Retail and Wholesale – Parts industry participants engage in various activities, including the retail, distribution and installation of vehicle components, equipment and accessories. These offerings include seat covers, antifreeze, engine additives, wiper blades, batteries, brake system parts, belts, chassis components, driveline parts, engine components and fuel pumps. Customers can choose between repairing their vehicles independently within the DIY market or relying on professional services through the do-it-for-me segment. The industry remains fiercely competitive and is undergoing transformative shifts driven by changing customer preferences and technological advancements.

Factors Influencing the Industry Outlook

Demand for Parts Replacement in Aging Vehicles: Over the last 10 years, the average age of vehicles on U.S. roads has risen from 11.1 years to 12.6 years. As cars grow older, they require more frequent servicing and replacement of components. This aging trend has prompted consumers to spend more on essential repairs and part replacements to maintain the functionality of their vehicles, thereby contributing to increased demand for auto parts.

Expansion Efforts: Auto part dealers are entering into new markets through strategic acquisitions and expansion of mega hubs, which are helping them grow their market share and strengthen their offerings. Additionally, investing in digital platforms aligns with shifting consumer preferences toward online transactions. This digital strategy is enabling dealers to reach a broader audience, ultimately driving higher profitability and expanding their market footprint.

Rising Capex to Impact Cash Flows:The auto part retailers are increasing their capital expenditure to support business growth, improve the electronic catalog, expand new stores and enhance their supply chain and merchandising projects for better inventory availability. Investments will also address store and technology updates and increased focus on essential maintenance. These increased investments might limit their near-term cash flows.

Zacks Industry Rank Indicates Bright Near-Term Prospects

The Zacks Auto Retail & Wholesale Parts industry is within the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #95, which places it in the top 39% of around 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates tepid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are getting optimistic about this group’s earnings growth potential.

Before we present a few stocks that could still be on your watchlist, let’s take a look at the industry’s shareholder returns and current valuation first.

Industry Tops S&P 500 & Sector

The Zacks Auto Retail and Wholesale Parts industry has outperformed the Auto, Tires and Truck sector and the Zacks S&P 500 composite over the past year. The industry has soared 10.3% over this period compared with S&P 500’s growth of 8.3%. The sector declined 4.9% in the same time frame.

One-Year Price Performance

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Industry's Current Valuation

Since automotive companies are debt-laden, it makes sense to value them based on the Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio.

Based on the trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 30.99X compared with the S&P 500’s 18.31X and the sector’s 16.34X.

Over the past five years, the industry has traded as high as 32.85X and as low as 18.68X, with the median being 24.15X, as the chart below shows.

EV/EBITDA Ratio (Past 5 Years)

Image Source: Zacks Investment Research

Image Source: Zacks Investment Research

3 Stocks to Consider

AutoZone: It is one of the leading specialty retailers and distributors of automotive replacement parts and accessories in the United States. The company expects continued growth in fiscal 2025, driven by strong DIY and commercial business performance with expanded coverage and improved parts availability. Growth is supported by enhanced satellite store inventory, hub and mega-hub expansion, the Duralast brand’s success, faster delivery and improved customer service. The company’s omnichannel efforts to improve the customer shopping experience are reaping profits. 

AZO currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for fiscal 2025 sales and EPS implies year-over-year growth of 1.78% and 2.74%, respectively. The Zacks Consensus Estimate for fiscal 2026 sales and EPS implies year-over-year growth of 5.26% and 12.96%, respectively.

Price & Consensus: AZO

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You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Genuine Parts: It distributes automotive and industrial replacement parts and materials. The acquisition of Motor Parts & Equipment Corporation in April 2024 has strengthened GPC’s ownership of NAPA stores across key Midwest regions of the United States. The NAPA brand's growth in Europe has reached €500 million in just five years. GPC also expanded its Motion business in North America with a small acquisition, enhancing fluid power and repair services. In February 2024, GPC announced a global restructuring initiative to better align its cost structure and assets with the current environment. In 2025, GPC will expand its restructuring efforts and take additional cost actions and expects to realize approximately $100 million to $125 million of additional savings. 

GPC currently carries a Zacks Rank #3. The Zacks Consensus Estimate for 2025 sales implies year-over-year growth of 2.74%. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 3.64% and 11.18%, respectively.

Price & Consensus: GPC

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Advance Auto: Advance Auto Parts, Inc. operates in the U.S. automotive aftermarket industry and is primarily engaged in selling replacement parts, accessories, batteries and maintenance items for domestic and imported cars, vans, sport utility vehicles, light and heavy-duty trucks. The sale of Worldpac for $1.5 billion to the Carlyle Group, completed in November 2024, has improved the company’s liquidity. It would allow the company to concentrate more effectively on its core business, specifically the advanced blended box business. This sharper focus can lead to more decisive actions in turning around key operations. 

AAP currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for 2025 EPS implies year-over-year growth of 644.83%. The Zacks Consensus Estimate for 2026 sales and EPS implies year-over-year growth of 1.84% and 90.99%, respectively.

Price & Consensus: AAP

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This article originally published on Zacks Investment Research (zacks.com).

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