Advance Auto Parts (AAP) Tests High After Earnings Beat

Advance Auto Parts, Inc. (AAP) shares rose more than 1.5% during Tuesday's session after the company reported better-than-expected second quarter financial results. Revenue rose 7.3% to $2.5 billion, beating consensus estimates by $130 million, while net income came in at $2.92 per share, beating estimates by $0.95.

Key Takeaways

  • Advance Auto Parts surpassed analyst expectations with a 7.5% increase in comparable sales during the second quarter.
  • CFRA Research raised its price target to $195.00 following the financial results, citing strength in the do-it-yourself (DIY) auto repair market.
  • The stock is testing prior highs from late last year and trendline resistance, but it appears overbought at current levels.

Comparable sales rose 7.5% during the second quarter, which came in far higher than 2.6% consensus estimates. While the company didn't offer any formal guidance, management said that the first five weeks of the third quarter showed strong growth in DIY omni-channel and comparable store sales in professional business segments.

Comparable store sales refer to the revenue generated by a retail location in the most recent accounting period relative to the revenue it generated in a similar period in the past.

CFRA Research raised its price target on Advance Auto Parts shares to $195.00 following the second quarter results, which represents a 21% premium to Monday's closing price. Analyst Garrett Nelson said that the massive earnings beat was driven by strength in the DIY auto repair market, which has benefited from stay-at-home trends, while the company's Walmart Inc. (WMT) partnership could further accelerate sales.

Chart showing the share price performance of Advance Auto Parts, Inc. (AAP)
TradingView.com

From a technical standpoint, the stock retested prior highs from late last year and long-term trendline resistance levels. The relative strength index (RSI) moved into overbought territory with a reading of 76.14, while the moving average convergence divergence (MACD) retained its bullish uptrend dating back to early last month.

Traders should watch for a period of consolidation before a breakout from long-term trendline resistance to retest highs from late 2018 and early 2020. If the stock fails to break out, traders could see the stock move lower to retest the 50-day moving average at $145.98. If the stock does break out, traders could see a move toward prior highs of around $182.60.

The Bottom Line

Advance Auto Parts surpassed analyst estimates with a 7.5% increase in comparable sales, which sent shares sharply higher during Tuesday's session. However, the RSI appears overbought, and shares may consolidate before moving higher.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

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