LKQ Corporation LKQ is likely to gain from acquisitions and restructuring plans amid declining repairable claims.
Let us see why you should retain this Zacks Rank #3 (Hold) stock in your portfolio for now.
Acquisitions & Restructuring Plan to Drive LKQ’s Prospects
LKQ’s strategic acquisitions are boosting its prospects. The acquisition of Uni-Select Inc. for $2.1 billion, completed on Aug. 1, 2023, has bolstered its global automotive vehicle parts distribution business. It will solidify LKQ’s pre-existing business operations in Quebec and is expected to boost revenue growth and improve margins. The company expedited the integration of FinishMaster, a subsidiary of Uni-Select, which will help it increase annualized Uni-Select synergies to $65 million by the end of 2026.
The company’s restructuring plan, focusing on exiting non-strategic businesses, streamlining operations and optimizing logistics, bodes well. In Europe, it resulted in increased efficiency of the logistics footprint, leading to a reduction in facilities and overhead costs. In North America, the company is aligning its cost structure with demand by rationalizing overhead costs. These actions aim to simplify the business, enhance efficiency and boost margins to maximize shareholder returns.
LKQ, one of the leading providers of replacement parts, components and systems required to repair and maintain vehicles, completed its mega-yard expansion in Crystal River, FL, and began operations on the newly expanded site in December. Additionally, it acquired land and started building two mega-yards in Illinois and Washington, scheduled to open in 2026. These expansions will support growth in recycled parts and enhance productivity.
The integration of expertise from its North American and European segments is expected to enhance LKQ’s procurement, remanufacturing, product development and growth in North American hard parts while creating opportunities in electrification. It will also deliver financial advantages, such as vendor financing and reduced capital costs.
Investor-friendly moves also boost shareholders’ optimism. The company is committed to maximizing shareholders’ value. It returned $678 million to its shareholders through dividends and share repurchases in 2024. It also has an active buyback program in place. LKQ has bought back $2.8 billion of stock since initiating its first repurchase plan in October 2018. In October 2024, it boosted its stock repurchase authorization by $1 billion. And as of Dec. 31, 2024, LKQ had $1.7 billion remaining on the stock buyback authorization.
Decrease in Repairable Claims & Competition to Ail LKQ
LKQ faced significant revenue and margin headwinds in the first three quarters of 2024 due to a decrease in repairable claims in North America. This trend continued into the fourth quarter, with a 6% decline in repairable claims. The company expects headwinds on repairable claims and salvage margins to continue in 2025, particularly in the first half of the year. Rising insurance premiums and repair costs, combined with declining used car prices, have created a challenging economic environment. Additionally, heightened competition from smaller distributors adds to the pressure on LKQ’s top-line performance. Smaller competitors aggressively lowering prices have led to a loss of volume for LKQ in the last reported quarter, impacting revenues. These headwinds are expected to persist.
Stocks to Consider
Some better-ranked stocks in the auto space are Geely Automobile Holdings Limited GELYY, Dana Incorporated DAN and Garrett Motion Inc. GTX. GELYY and DAN sport a Zacks Rank #1 (Strong Buy) each, and GTX carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for GELYY’s fiscal 2025 sales and earnings indicates year-over-year growth of 66.62% and 149.31%, respectively. EPS estimates for fiscal 2025 and 2026 have improved by 15 cents and 38 cents, respectively, in the past 60 days.
The Zacks Consensus Estimate for DAN’s 2025 earnings implies year-over-year growth of 79.17%. EPS estimates for 2025 have improved by 20 cents in the past 30 days.
The Zacks Consensus Estimate for GTX’s 2025 sales and earnings indicates year-over-year growth of 2.16% and 17.92%, respectively. EPS estimates for 2025 have improved by a penny in the past 30 days.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
