AAP - Advance Auto Parts stock slips as Wedbush steps to sidelines

Advance Auto Parts ( NYSE: AAP ) was downgraded on Thursday as Wedbush analyst Seth Basham voiced concerns on company margins.

In its third quarter report, the auto parts retailer announced further investments in its Pro segment in order to shore up market share. However, Basham views this as a red flag given its lower margins and higher inventory levels as compared to the likes of O’Reilly Automotive ( ORLY ) and AutoZone ( AZO ).

“While AAP shares have sharply underperformed peers in the past six months, we see mounting risks to consensus expectations as the company embarks on price and inventory investments to improve market share performance and faces enormous LIFO charges,” he warned clients.

Basham cut his rating to Neutral from Outperform and cut his price target to $145 from $165.

“While this valuation multiple is well below historical averages, rising risks (including increasing financial leverage), sharp underperformance vs. peers and low earnings quality warrant a lower multiple, in our view,” he concluded.

Shares of the North Carolina-based retailer fell 1.19% in premarket trading on Thursday.

Read more on the Wall Street reaction to Advance Auto Parts’ Q3 report .

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