Industry Overview - The Zacks Automotive Replacement Parts industry is facing challenges due to persistent cost inflation, intensifying competition, and increasing vehicle complexity, which dampen margins and pricing power [1][3][4] - The aging vehicle fleet serves as a stabilizing demand factor, as consumers maintain older cars amid high vehicle prices [1][7] - The industry is undergoing a transition influenced by evolving consumer expectations, rising vehicle complexity, and technological innovation [2] Key Challenges - Margin pressure is driven by elevated labor, freight, and sourcing costs, with incomplete cost pass-through limiting margin recovery, especially for smaller distributors [3] - Rising vehicle complexity, including advanced electronics and EV-specific systems, increases repair costs and execution risks for aftermarket players [4] - Tariff exposure from reliance on imported parts adds cost volatility, impacting margins and increasing earnings volatility for manufacturers and distributors [5] - Intensifying competition from private-label expansion and aggressive promotions limits pricing power, while elevated investments in technology raise operating costs [6] Demand Drivers - The aging vehicle fleet, with an average age of nearly 12.8 years in the U.S., supports demand for replacement parts as older vehicles require more frequent repairs [7] Industry Performance - The Zacks Automotive Replacement Parts industry ranks 208, placing it in the bottom 14% of around 240 Zacks industries, indicating weak near-term prospects [8][9] - The industry has underperformed compared to the Auto, Tires, and Truck sector and the S&P 500, declining approximately 5% over the past year [11] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 9.64X, significantly lower than the S&P 500's 17.29X and the sector's 28.92X [14] Company Highlights - Genuine Parts Company (GPC) is expanding through acquisitions and restructuring initiatives, enhancing operational efficiency and maintaining a shareholder-friendly approach with a 3% dividend increase for 2025 [18][19] - GPC has a Zacks Rank 2 (Buy), with a consensus estimate implying 4% sales growth and 10% EPS growth for 2026 [20] - Dorman Products focuses on product innovation and market expansion, with a recent acquisition strengthening its growth profile [23] - Dorman has a Zacks Rank 3 (Hold), with a consensus estimate indicating 6% sales growth and 9% EPS growth for 2026 [25]

Core Insights - Net profit is a crucial indicator of a company's financial health, reflecting its ability to convert sales into profits [1] - A low profit margin indicates higher risks, while companies like Great Lakes Dredge & Dock Corporation (GLDD), Strattec Security Corporation (STRT), Natural Gas Services Group, Inc. (NGS), and Standard Motor Products, Inc. (SMP) demonstrate solid net profit margins [2] - A higher net profit margin compared to peers provides a competitive edge and attracts investors and skilled employees [4] Financial Metrics - Net Profit Margin is calculated as Net Profit/Sales * 100, serving as a reference for assessing operational strength and cost control [3] - A healthy net profit margin and solid EPS growth are essential for maximizing returns [7] Screening Criteria - Companies with a net margin of at least 0% indicate solid profitability [8] - Positive percentage change in EPS indicates earnings growth [8] - A Zacks Rank of 1 or 2 suggests strong performance potential [10] Selected Companies - GLDD is the largest provider of dredging services in the U.S., with a Zacks Rank of 1 and a VGM Score of A; its 2026 earnings estimate has increased by $0.10 to $1.09 per share [10][11] - STRT designs and manufactures automotive locks, holding a Zacks Rank of 1 and a VGM Score of A; its 2026 earnings estimate has risen by 23.3% to $5.24 per share [12][13] - NGS produces natural gas compressors, also with a Zacks Rank of 1 and a VGM Score of B; its 2026 earnings estimate has increased by 14.1% to $2.11 per share [13][14] - SMP manufactures automotive replacement parts, currently holding a Zacks Rank of 2 and a VGM Score of A; its 2026 earnings estimate has risen by $0.04 to $4.31 per share [15][16]

Core Insights - Thompson, Siegel, & Walmsley (TSW) has significantly increased its stake in LKQ Corporation, reflecting confidence in the company's long-term value despite recent stock price declines [2][10]. Company Overview - LKQ Corporation is a leading distributor of automotive replacement parts and related products, with a diversified presence across North America and Europe [5]. - The company operates a distribution-focused business model, generating revenue through the sale of new and recycled automotive parts to various customers, including repair shops and dealerships [7]. - As of December 8, 2025, LKQ's market capitalization is $7.33 billion, with a revenue of $13.96 billion and a net income of $697 million for the trailing twelve months [4]. Investment Activity - TSW's recent purchase of 1,470,033 shares of LKQ increased its total holdings to 3,544,970 shares, valued at $108.26 million as of September 30, 2025 [2][3]. - LKQ now represents 1.75% of TSW's 13F reportable assets under management (AUM) [3]. - TSW has added shares of LKQ six times over the last two years, more than doubling its ownership in the company [10]. Market Performance - LKQ's stock price as of December 8, 2025, is $28.65, which is down 26% over the past year, significantly trailing the S&P 500 by 39 percentage points [3]. - The company's EV/EBITDA ratio is currently at 7.8, the lowest outside of major market crashes, indicating a potentially undervalued position in the market [11]. Dividend and Future Outlook - LKQ offers a dividend yield of 4.2%, which is at an all-time high, suggesting it may be an attractive time for investors to consider the stock [12]. - Despite the current challenges and transformation in the automotive industry, LKQ is viewed as operationally sound and a leader in its niche [10].

Core Viewpoint - The Zacks Automotive Replacement Parts industry is facing challenges due to evolving vehicle technology, which increases complexity and repair costs, while also pressuring supply chains to adapt quickly. However, the aging U.S. vehicle fleet is expected to support strong demand for replacement parts, as consumers focus on maintaining older vehicles rather than purchasing new ones [1]. Industry Overview - The Zacks Automotive - Replacement Parts industry includes companies involved in the production, marketing, and distribution of replacement components for the automotive aftermarket. Key components include engine, steering, drive axle, suspension, brakes, and gearbox parts. The market is less exposed to downturns as consumers prioritize maintenance over new purchases [2]. Factors Influencing Industry Dynamics - Evolving technology is creating significant challenges for the automotive supply chain, as modern vehicles require specialized knowledge and equipment for maintenance and repair. This complexity can lead to longer repair times and higher costs, particularly with the rise of electric and autonomous vehicles [3]. - The shift towards e-commerce is forcing companies to invest heavily in digital capabilities to remain competitive, which can pressure near-term cash flows despite enhancing long-term growth prospects [4]. - The average age of vehicles in the U.S. has increased to 12.8 years in 2025, up from 12.6 years in 2024, leading to higher demand for replacement parts as owners delay new purchases [5]. Industry Performance and Valuation - The Zacks Automotive – Replacement Parts industry currently holds a Zacks Industry Rank of 197, placing it in the bottom 20% of approximately 250 Zacks industries, indicating weak near-term prospects [6][7]. - Over the past year, the industry has underperformed compared to the Auto, Tires, and Truck sector, losing 19.5% against the sector's growth of 12.2% and the S&P 500's return of 15.7% [9]. - The industry is trading at an EV/EBITDA ratio of 6.89X, significantly lower than the S&P 500's 17.81X and the sector's 22.03X, with historical trading ranges between 6.04X and 12.15X over the past five years [12]. Notable Companies - **Dorman Products, Inc. (DORM)**: A leading supplier of replacement parts, Dorman's Light Duty segment introduced new automotive repair solutions, creating over 12 million new sales opportunities. The company revised its 2025 net sales forecast to a growth of 7-9% year-over-year, up from 3-5% [14]. The Zacks Consensus Estimate for Dorman's 2025 earnings implies an 18.1% year-over-year growth [15]. - **Standard Motor Products, Inc. (SMP)**: A major manufacturer of automotive replacement parts, SMP's acquisition of Nissens is expected to yield $8-$12 million in annualized cost savings within 24 months. The Zacks Consensus Estimate for SMP's 2025 sales and earnings indicates year-over-year growth of 19.8% and 16.7%, respectively [19][20]. - **Douglas Dynamics, Inc. (PLOW)**: Specializing in snow and ice control equipment, Douglas's Solutions segment reported a 5.4% increase in net sales and a 39.8% growth in adjusted EBITDA in Q2 2025. The company raised its 2025 net sales forecast to $630-$660 million [23]. The Zacks Consensus Estimate for Douglas's 2025 sales and earnings suggests year-over-year growth of 13.3% and 46.9%, respectively [24].

Company Overview - Standard Motor Products Inc. is a leading manufacturer, distributor, and marketer of premium automotive replacement parts for engine management and temperature control systems, founded in 1919 [11] - The company started reporting results in four segments: Vehicle Control, Temperature Control, Engineered Solutions, and Nissens Automotive from February 2025 [11] Investment Ratings - Standard Motor Products holds a Zacks Rank of 2 (Buy) and has a VGM Score of A, indicating strong potential for investors [12] - The company is considered a top pick for growth investors, with a Growth Style Score of B, forecasting year-over-year earnings growth of 15.8% for the current fiscal year [12] Earnings Estimates - In the last 60 days, one analyst revised their earnings estimate upwards, with the Zacks Consensus Estimate increasing by $0.09 to $3.67 per share [12] - Standard Motor Products boasts an average earnings surprise of +40.4%, highlighting its strong performance relative to expectations [12] Investment Considerations - With a solid Zacks Rank and top-tier Growth and VGM Style Scores, Standard Motor Products is recommended for investors' consideration [13]

Core Viewpoint - Zacks Premium provides tools and resources to help investors make informed decisions and enhance their confidence in stock market investments [1] Summary by Categories Zacks Style Scores - Zacks Style Scores are indicators that assist investors in selecting stocks likely to outperform the market within 30 days, rated from A to F based on value, growth, and momentum characteristics [2] Value Score - The Value Style Score identifies attractive and discounted stocks using ratios such as P/E, PEG, Price/Sales, and Price/Cash Flow, appealing to value investors [3] Growth Score - The Growth Style Score focuses on a company's financial health and future outlook, analyzing projected and historical earnings, sales, and cash flow to identify stocks with sustainable growth potential [4] Momentum Score - The Momentum Style Score helps investors capitalize on price or earnings trends, utilizing factors like one-week price change and monthly earnings estimate changes to identify high-momentum stocks [5] VGM Score - The VGM Score combines Value, Growth, and Momentum Scores, providing a comprehensive indicator for investors who prefer a multifaceted approach to stock selection [6] Zacks Rank - The Zacks Rank is a proprietary stock-rating model based on earnings estimate revisions, with 1 (Strong Buy) stocks achieving an average annual return of +25.41% since 1988, significantly outperforming the S&P 500 [7][8] Stock Selection Strategy - To maximize returns, investors should focus on stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B, while also considering earnings outlook changes [9][10] Company Spotlight: Standard Motor Products (SMP) - Standard Motor Products Inc., established in 1919, is a leading manufacturer and distributor of automotive replacement parts, reporting results in four segments since February 2025 [11] - SMP holds a Zacks Rank of 2 (Buy) with a VGM Score of A, and a Growth Style Score of B, indicating a forecasted year-over-year earnings growth of 10.7% for the current fiscal year [12] - The Zacks Consensus Estimate for SMP's earnings has increased by $0.05 to $3.51 per share, with an average earnings surprise of 38.6%, making it a strong candidate for growth investors [12][13]