Deutsche Bank (DB) initiated coverage of Advance Auto Parts Inc. (NYSE:AAP) with a "Buy" rating and price target of $80.
DB analyst Mike Baker said his positive view is based on favorable industry trends, company specific market share drivers in the commercial segment and operational improvements, and a strong balance sheet.
"We believe these factors should drive better than expected EPS and an above average growth rate that is not captured in AAP's current valuation. Our long term earnings power estimate is $8.50 per share," Baker wrote in a note.
Baker said AAP can grow its margins primarily by improving its cost structure relative to peers as the company seeks to harvests past investments. Margin expansion will be the main driver to AAP's above average earnings growth rate.
AAP will generate close to $400mm in free cash flow annually, returning cash to shareholders through buybacks, contributing to earnings growth, the analyst adds.
The stock is down $0.04 at $69.60.