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Stock Strategist

We See Rising Returns at Genuine Parts Despite Industry Weakness

We think the slump in auto-parts retail is cyclical in nature rather than structural.

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As a top distributor of automotive and industrial parts,  Genuine Parts (GPC) benefits from industry dynamics favoring its scale-enabled service levels. We believe the company will use its cost advantage to boost sales through its ability to offer a wide variety of parts on short order, building inventory and cost leverage as sales rise while fortifying brand value in a way that subscale peers cannot economically replicate. We expect these advantages to outweigh industry-driven deterioration in the company’s office product unit.

Aftermarket auto-parts retailers serve do-it-yourself and professional clients. The faster-growing latter category depends on high levels of part availability and rapid delivery to turn repair bays and avoid costly service queue reshuffling.

Zain Akbari does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.