Sell: LKQ (LKQ)
From Dow Theory Forecasts
Updated from WSBI 783, July 20, 2016
We are downgrading LKQ (LKQ) from the Buy and Long-Term Buy lists after the company posted a disappointing December quarter and gave mixed guidance for 2017. LKQ, a supplier of recycled and aftermarket auto parts, said per-share profits rose 15% to $0.39 excluding special items in the December quarter, missing the consensus by a penny. Sales jumped 23% to $2.15 billion, falling short of analysts’ target of $2.28 billion.
Management blamed the disappointing results on a lower volume of car repairs due to unusually mild weather. But LKQ has now used this excuse in each of the past three quarters, even as the number of miles driven keeps rising.
The stock still earns a solid Quadrix Overall score of 85, and cash flow remains strong, with cash from operations climbing 20% last year. However, profit estimates have eroded in the week since LKQ’s quarterly report, which could keep the shares under pressure. The stock is being dropped from coverage and should be sold.
Richard J. Moroney, CFA, Dow Theory Forecasts, www.dowtheory.com, 800-233-5922, March 6, 2017