On Dec 30, 2015, Zacks Investment Research downgraded Advance Auto Parts Inc. AAP to a Zacks Rank #4 (Sell).

Why the Downgrade?

Advance Auto Parts’ comparable earnings per share of $1.95 in the third quarter of fiscal 2015 (ended Oct 10, 2015) missed the Zacks Consensus Estimate of $2.06. Revenues of $2.29 billion also fell short of the Zacks Consensus Estimate of $2.33 billion. Gross profit declined 0.2% to $1.032 billion, or 45% of sales in the quarter, from $1.034 billion or 45.2% of sales a year ago. The decrease in gross profit margin was attributable to higher inventory expenses due to product integration and modest supply chain expense.

Based on the disappointing third-quarter results, continuing integration headwinds and soft sales volume recorded in the beginning of the fourth quarter, Advance Auto Parts reduced its guidance for fiscal 2015. The company now expects earnings per share in the range of $7.75–$7.90 in fiscal 2015, down from the previous forecast of $8.10–$8.30. The company also anticipates flat to slightly negative comparable store sales and flat gross margin rate in the fourth quarter. Further, earnings are expected to remain under pressure in the fourth quarter due to the impact of integration activities.

Moreover, Advance Auto Parts is recording declining cash flow. During the first nine months of fiscal 2015, operating cash flow dropped to $520.1 million from $540.3 million in the same period of fiscal 2014. Free cash flow in the period decreased to $358.9 million from $378.8 million in the comparable year-ago period.

Stocks to Consider

Better-ranked automobile stocks include U.S. Auto Parts Network, Inc. PRTS, Fox Factory Holding Corp FOXF and O'Reilly Automotive Inc. ORLY. All these stocks carry a Zacks Rank #2 (Buy).

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O REILLY AUTO (ORLY): Free Stock Analysis Report
 
ADVANCE AUTO PT (AAP): Free Stock Analysis Report
 
FOX FACTORY HLD (FOXF): Free Stock Analysis Report
 
US AUTO PARTS (PRTS): Free Stock Analysis Report
 
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