Advance Sets Its Sights on Fiscal 2023 Margin Expansion and Filling Retiring CEO Vacancy

We don’t plan any material change to our $201 per share fair value estimate for narrow-moat Advance Auto Parts after digesting fourth-quarter results. Even after a mid-single-digit lift, we view shares as attractive, trading at over a 25% discount, and think the shift to GAAP reporting signals the intention of management to focus on extracting efficiencies and improving product availability from the existing business, rather than the pursuit of significant acquisitions ahead. As such, the initial forecast for 7.8%-8.2% GAAP operating margin implies the expected capture of roughly 160 basis points in operating margin expansion in fiscal 2023, as Advance, like its peers, tends to benefit from a less elastic demand profile that isn’t as affected by inflationary pressures.