Advance Auto Parts: Rock-Bottom Valuation With Massive Upcoming Catalyst, Strong Buy

Company Overview - Advance Auto Parts (AAP) has seen its shares decline over 70% since 2021 due to mismanagement and a flawed promotional strategy, but it is now viewed as a turnaround opportunity with an experienced leadership team [2][3][4] - The newly appointed CEO Shane O'Kelly has a strong background and is expected to lead the company effectively, supported by a strengthened board with industry veterans [3][4] Management Changes - The board has added three new directors with significant experience in the automotive industry, which is crucial for the company's turnaround efforts [3][4] - Brent Windom, one of the new directors, has invested $834,500 in AAP stock, indicating confidence in the company's future [4] Strategic Initiatives - AAP plans to divest Worldpac, a high-performing asset, to simplify operations and focus on core business, with potential sale proceeds estimated between $2 billion and $3 billion [6][7] - The proceeds from the Worldpac sale will be allocated to debt reduction, reinvestment in the core business, and returning capital to shareholders [7] Supply Chain Improvements - AAP aims to create a unified supply chain network, consolidating its distribution centers from over 38 to 14, which is expected to enhance efficiency and reduce costs [9][10] - The company is investing $200 to $250 million in FY2024 to support these supply chain improvements [10] Margin Restoration - AAP is focused on restoring operating margins, which have declined to a low of (3.27%) but have recently rebounded to 2.5% [13][15] - Management forecasts operating margins to improve to 3.2% to 3.5% in FY2024, with long-term goals of returning to double-digit margins [15][19] Industry Context - The aftermarket auto parts industry is resilient during economic downturns, with AAP benefiting from a customer mix that skews towards professional repair shops [16][17] - The aging vehicle fleet in the U.S., with an average age of 12.6 years, is expected to drive demand for aftermarket parts [17] Financial Projections - For FY2024, AAP's top-line sales are projected at $11.3 to $11.4 billion, with conservative revenue growth forecasts through FY2027 [18] - The estimated share price target for AAP is $119, implying an 81% upside potential from current levels [19][20]