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Advance Auto Parts Inc AAP

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Morningstar’s Analysis

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Advance Sets Strong Targets for the Years Ahead as Its Transformation Continues; Shares Trade Fairly

Zain Akbari, CFA Equity Analyst

Analyst Note

| Zain Akbari, CFA |

Our $184 per share valuation of narrow-moat Advance should rise by a mid-single-digit percentage after it posted preliminary first-quarter results, raised 2021 guidance, and set 2023 targets. The targets are ambitious considering the complexity of achieving process and structural optimization without sacrificing part availability, but we believe management is appropriately developing a more tightly integrated organization with greater strategic flexibility from pricing, distribution, supply chain, and channel standpoints. While the shares trade near our valuation, we suggest prospective investors monitor Advance for future buying opportunities as its path to optimization is complex and should not prove linear.

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Company Profile

Business Description

Advance Auto Parts is one of the industry’s largest retailers of aftermarket automotive parts, tools, and accessories to do-it-yourself customers in North America. Advance operated 4,976 stores as of the end of 2020, in addition to servicing 1,277 independently owned Carquest stores. The company’s Worldpac unit is a premier distributor of imported original-equipment parts. Advance derived 57% of its 2020 sales from commercial clients, up from 30%-40% before the General Parts deal.

2635 East Millbrook Road
Raleigh, NC, 27604
T +1 540 362-4911
Sector Consumer Cyclical
Industry Specialty Retail
Most Recent Earnings Dec 31, 2020
Fiscal Year End Dec 28, 2020
Stock Type Cyclical
Employees 68,000