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Advance Auto Parts, Inc. (AAP) has made real progress on its turnaround. Bank of America analyst Christopher Nardone just isn't ready to throw a party about it.
On Monday, Nardone reinstated coverage of the auto-parts retailer with an Underperform rating and a $42 price forecast. His reasoning: uncertainty around future productivity gains, muted sales growth, and weaker execution relative to larger rivals.
To be fair, Nardone gives credit where it's due. Advance Auto Parts has simplified its business and improved operations. The company closed more than 500 underperforming stores, consolidated its distribution network and expanded its assortment and market-hub footprint.
Management also strengthened vendor relationships, launched the ARGOS private-label brand and improved stores, technology and customer service.
Those efforts helped Advance Auto Parts return to positive comparable sales in 2025, expand operating margin by more than 200 basis points and position the business to generate positive free cash flow in 2026.
BofA forecasts sales of $8.52 billion in 2026, $8.65 billion in 2027 and $8.77 billion in 2028. Adjusted EPS is projected at $2.75, $3.24 and $4.05, respectively.
Despite the progress, Nardone expects sales growth to remain muted, particularly in the DIY business, given continued pressure on lower- and middle-income consumers.
BofA expects operating margin to improve to 4.0% in 2026, 4.3% in 2027 and 4.9% in 2028.
Management continues to target a 7% adjusted operating margin over the medium term but no longer explicitly commits to reaching that level by 2027. That's a telling bit of hedging.
The firm also forecasts free cash flow of $100 million in 2026, $110 million in 2027 and $116 million in 2028.
BofA's $42 price forecast values Advance Auto Parts at 13 times earnings, below its auto-parts peers. Nardone said the gap reflects AAP's weaker growth outlook, lower returns on invested capital, and less consistent execution.
O'Reilly Automotive, Inc. (ORLY) trades at a higher forward earnings multiple and continues to execute strongly, according to the report. BofA's peer comparison shows O'Reilly at 27.6 times one-year forward earnings versus 16.9 times for Advance Auto Parts.
AutoZone, Inc. (AZO) also trades at a premium, at 19.1 times one-year forward earnings.
Nardone said Advance Auto Parts continues to trail both rivals on gross margins, with supply-chain efficiency, pricing and merchandising execution accounting for much of the gap.
He nevertheless sees upside if AAP accelerates comparable-sales growth, improves supply-chain execution or captures additional market share.
Advance Auto Parts carries a Hold consensus rating with an average price forecast of $48.47.
Rothschild downgraded the stock to Sell on Oct. 26 and lowered its price forecast to $32. Citigroup maintained Neutral and raised its forecast to $48 on Oct. 23, while RBC Capital maintained Sector Perform and lowered its forecast to $49 the same day.
AAP Price Action: Advance Auto Parts shares were down 2.21% at $45.93 at the time of publication on Monday, according to market data.
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