Advance Auto Parts, Inc. (AAP): A Bull Case Theory

Core Thesis - Advance Auto Parts, Inc. (AAP) is viewed as a compelling turnaround investment under the leadership of CEO Shane O'Kelly, who joined in September 2023, with significant strategic actions taken to strengthen the business [3][4][7] Company Overview - AAP provides automotive aftermarket parts in the U.S. and internationally, operating 4,292 stores and 842 independent Carquest locations [3] - The company's share was trading at $49.59 as of January 28th, with trailing and forward P/E ratios of 174.78 and 19.34 respectively [1] Strategic Actions - Recent actions include the sale of Worldpac for $1.5 billion, closing 500 underperforming stores, and rationalizing the distribution network, which have simplified operations and improved delivery times [3][4] - The company aims for a 2027 operating margin target of 7%, which is above market expectations, supported by supply chain expertise and a strong executive team [4] Market Positioning - AAP holds the top or second-highest market share in 75% of its operational footprint, indicating enhanced market positioning [5] - The balance sheet is robust, with over $3 billion in cash and minimal net debt, allowing for potential future capital returns once investment-grade credit status is regained [5] Financial Metrics - AAP trades at a 6.1x EV/EBITDA multiple on 2026 consensus estimates, significantly lower than the peer average of 16.3x [6] - Applying a conservative 10x multiple to 2026 EBITDA suggests a price target of $105.81 per share, with 2027 targets indicating $149.04, representing a potential upside of 166% [6] Historical Context - AAP's stock price has appreciated by 18.18% since previous bullish coverage in December 2024, which also highlighted the company's turnaround and operational improvements [7]