Options Trade – Advance Auto Parts, Inc. (NYSE:AAP) Calls 
Monday, February 09, 2015

**OPTIONS TRADE: Buy the AAP Mar 2015 170.000 call (AAP150320C00170000) at or under $2.80, good for the day. Place a protective stop loss at $1.10 and a pre-determined sell at $5.00.

by Ian Harvey

February 09, 2015


Advance Auto Parts, Inc. (NYSE: AAP), a specialty retailer of automotive aftermarket parts, accessories, batteries and maintenance items primarily operating within the United States which operates in two segments: Advance Auto Parts (AAP), and Autopart International (AI), is scheduled to release its fourth-quarter numbers before the market opens on February 12. Analysts have forecast earnings of $1.49 per share. The stock is up 0.4% on the year.

Advance Auto Parts has been strong over the last year, fueled by an improved auto sector. Earnings have been rising nicely, and if the company hits the consensus for its fourth quarter it would mark 58% year over year growth.

Technical Details

Advance Auto Parts has a 52 week low of $115.76 and a 52 week high of $163.46. The stock’s 50-day moving average is $157.5 and its 200-day moving average is $142.4.

The company has a market cap of $11.415 billion and a P/E ratio of 25.21.


Advance Auto Parts (NYSE:AAP) last posted its quarterly earnings results on Thursday, November 6th. The company reported $1.89 EPS for the quarter, beating the Thomson Reuters consensus estimate of $1.87 by $0.02. The company had revenue of $2.29 billion for the quarter, compared to the consensus estimate of $2.29 billion.

During the same quarter in the prior year, the company posted $1.42 earnings per share. The company’s quarterly revenue was up 50.6% on a year-over-year basis. Analysts expect that Advance Auto Parts will post $7.71 EPS for the current fiscal year.

Analysts Opinions

Advance Auto Parts‘s stock had its “buy” rating reaffirmed by investment analysts at Deutsche Bank in a note issued to investors on Wednesday. They currently have a $180.00 price target on the stock. Deutsche Bank’s target price would indicate a potential upside of 15.04% from the stock’s previous close.

Deutsche Bank previously upped its price target on Advance Auto Parts to $180 from $150.

The firm said it raised its rating on the retailer of automotive aftermarket parts, accessories, batteries, and maintenance products, as it believes auto part sales will benefit from reduced gas prices.

Deutsche Bank said that it feels Advance Auto Parts will "be able to drive higher than expected synergies from its general parts integration."

At the same time as the upgrade by Deutsche Bank, TheStreet Ratings team rated ADVANCE AUTO PARTS INC as a Buy with a ratings score of A. TheStreet Ratings Team had this to say about their recommendation:-

"We rate ADVANCE AUTO PARTS INC (AAP) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its robust revenue growth, reasonable valuation levels, solid stock price performance, growth in earnings per share and increase in net income. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated"

Highlights from the analysis by TheStreet Ratings Team:-

• AAP's very impressive revenue growth greatly exceeded the industry average of 9.8%. Since the same quarter one year prior, revenues leaped by 50.6%. Growth in the company's revenue appears to have helped boost the earnings per share.

• Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 43.91% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AAP should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.

• ADVANCE AUTO PARTS INC has improved earnings per share by 16.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, ADVANCE AUTO PARTS INC increased its bottom line by earning $5.33 versus $5.22 in the prior year. This year, the market expects an improvement in earnings ($7.72 versus $5.33).

• The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Specialty Retail industry average. The net income increased by 17.7% when compared to the same quarter one year prior, going from $103.83 million to $122.18 million.

The company has been also been the subject of a number of other research reports:-

• Analysts at Wedbush set a $185.00 price target on shares of Advance Auto Parts and gave the company a “buy” rating in a research note on Monday, January 26th.

• Analysts at RBC Capital downgraded shares of Advance Auto Parts from a “top pick” rating to an “outperform” rating and raised their price target for the stock from $163.00 to $177.00 in a research note on Friday, January 9th.

• Analysts at Citigroup Inc. reiterated a “hold” rating and set a $165.00 price target (up previously from $145.00) on shares of Advance Auto Parts in a research note on Monday, January 5th.

• Finally, analysts at Zacks downgraded shares of Advance Auto Parts from an “outperform” rating to a “neutral” rating and set a $153.00 price target on the stock in a research note on Monday, November 24th.

Six analysts have rated the stock with a hold rating, eleven have issued a buy rating and one has assigned a strong buy rating to the stock. Advance Auto Parts currently has an average rating of “Buy” and an average price target of $164.23.


The company has outpaced analyst estimates seven of the last eight quarters, and the one instance when it did not top the consensus; its earnings were in-line. Therefore, expect another strong report for the fourth-quarter, which should keep the stock moving higher. Look for an upbeat report, for the stock to rise to a new all-time high following the results.

Therefore, based on the facts above the following options trade is recommended…..

**OPTIONS TRADE: Buy the AAP Mar 2015 170.000 call (AAP150320C00170000) at or under $2.80, good for the day. Place a protective stop loss at $1.10 and a pre-determined sell at $5.00.

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