LKQ - LKQ: Durable Compounder At An Attractive Valuation
2024-07-10 13:35:14 ET
Summary
- LKQ Corporation is the world's largest provider of alternative collision and mechanical replacement parts - a relatively steady business with positive secular trends.
- LKQ benefits from scale, with sophisticated systems for inventory management and a large network of facilities and vehicles.
- After successfully expanding capabilities and geographic reach, new leadership appears laser-focused on gaining efficiencies and improving margins.
- Despite a solid 3-5 year outlook, the stock trades at a significant discount to the market and to historical metrics.
- LKQ should prove to be a steady compounder over the next several years, and we recommend buying the stock.
The Company
LKQ Corporation is the world’s largest provider of alternative collision replacement parts, which includes recycled parts and aftermarket parts. Basically, when a car or truck gets in an accident and the vehicle is deemed by the insurance company to be a total loss, LKQ acquires the damaged vehicle, dismantles it, refurbishes the parts as necessary, and sells the parts to repair shops (the customer) for normal repairs. For many such repairs, insurance companies compel the repair shops to use aftermarket parts, which typically cost 20-40% less than OEM parts. As such, LKQ partners with insurers to drive demand for alternative parts. In addition to body parts and mechanical parts, LKQ sells scrap metal to dealers and fluids to remanufacturers....
LKQ: Durable Compounder At An Attractive Valuation