Down 26% In 2018, LKQ Is Far From 'Totaled,' Says Bullish SunTrust Analyst

Auto parts distributor LKQ Corporation LKQ's stock fell 26 percent in 2018, but investors who think the stock is "totaled" may want to reconsider, according to SunTrust Robinson Humphrey. 

The Analyst

Analyst Stephanie Benjamin initiated coverage of LKQ's stock with a Buy rating and $40 price target.

The Thesis

Shares of LKQ plummeted 20 percent in reaction to first-quarter results that included an EPS miss and a reduction in full-year guidance.

Any issues seen in the quarter are transitional rather than structural, Benjamin said in the initiation note. LKQ saw temporary issues at its new UK warehouse as the company shifted from three smaller legacy warehouses to a new, fully automated facility that was unable to immediately handle a full capacity, the analyst said. 

The state-of-the-art facility is "under control" and any near-term sales disruption has been since "fully rectified," Benjamin said. While it will take a few more quarters before the new facility has worked out all inefficiencies, there is little doubt the company will exit 2018 without remaining production issues, the analyst said. 

The 26-percent selloff in LKQ's stock since the turn of the year is "unwarranted," Benjamin said, adding that the weakness represents a "great opportunity" for a company with a long runway to post at least a mid-single digit organic growth rate and a notable scale advantage in both the U.S. and Europe.

Price Action

LKQ shares were up 2.52 percent at the time of publication Wednesday afternoon.

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