Scott Pope: LKQ Corporation presents a fascinating story that demonstrates what a strong management team can accomplish with a mature roll-up strategy. Currently, narrow-moat LKQ is an attractive 5-star stock that trades at a 30% discount to our fair value estimate. The firm has come a long way since it was founded two decades ago as an acquirer of auto salvage companies. After more than 275 acquisitions, LKQ has become a leading distributor of new, recycled, and specialty auto parts to professional repair shops in North America and Europe.
Core to LKQ’s strategy is its ability to supply collision and mechanical parts at up to a 30% discount to traditional OEM pricing. As LKQ has grown larger and implemented numerous technology initiatives, it has not only been able to provide superior pricing but also the highest fulfillment rates. This combination has led to a virtuous cycle as repair shops look to LKQ as a single-stop supplier. At the same time, insurance companies have embraced the LKQ model and encouraged adoption of alternative, non-OEM parts to contain costs and minimize out-of-service times for policyholders’ vehicles.
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Scott Pope does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.