Author Topic: LKQ - LKQ Corp.  (Read 22038 times)

Okonomen

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Re: LKQ - LKQ Corp.
« Reply #30 on: August 26, 2018, 12:02:17 PM »
Great discussion here. I really like the automotive aftermarket industry. AZO is my largest position. I have also recently stumbled over LKQ and see some really interesting characteristics with the industry and the company. However, I also see some warning signs:

1) Mgmt performance pay is tied up on revenue growth, EPS growth and ROE. This induces M&A behavior and growth at any cost (almost) instead of using metrics such as e.g. ROIC, FCF or ebit-margin

2) As Ross mentions, acquisitions gives LKQ scale etc but this also bears a lot of risk. I generally prefer to see companies grow organically as each and every acquisition gives some risk and most acquisitions are bought too expensive. Just look at stericycle. The reasoning with M&A is quite the same but they have severe hangovers from all that M&A and their balance sheet is all air

3) The company's reported ROIC is only around 9-10%. If you include all intangibles - which I think one should when the biz is so much into M&A - the ROIC is maybe even smaller?

However, I really dig these recession proof industries and especially automotive aftermarket. Do you know any other companies in such industries? I mainly know about AZO, ORLY, GPC, AAP etc


walkie518

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Re: LKQ - LKQ Corp.
« Reply #31 on: August 27, 2018, 01:53:03 PM »
Great discussion here. I really like the automotive aftermarket industry. AZO is my largest position. I have also recently stumbled over LKQ and see some really interesting characteristics with the industry and the company. However, I also see some warning signs:

1) Mgmt performance pay is tied up on revenue growth, EPS growth and ROE. This induces M&A behavior and growth at any cost (almost) instead of using metrics such as e.g. ROIC, FCF or ebit-margin

2) As Ross mentions, acquisitions gives LKQ scale etc but this also bears a lot of risk. I generally prefer to see companies grow organically as each and every acquisition gives some risk and most acquisitions are bought too expensive. Just look at stericycle. The reasoning with M&A is quite the same but they have severe hangovers from all that M&A and their balance sheet is all air

3) The company's reported ROIC is only around 9-10%. If you include all intangibles - which I think one should when the biz is so much into M&A - the ROIC is maybe even smaller?

However, I really dig these recession proof industries and especially automotive aftermarket. Do you know any other companies in such industries? I mainly know about AZO, ORLY, GPC, AAP etc
might be worth noting that GPC is planning on merging Essendant with the SP Richards distribution business then spinning the stock:
http://genuineparts.investorroom.com/2018-04-12-Essendant-And-Genuine-Parts-Companys-S-P-Richards-Business-To-Combine-To-Form-Stronger-More-Competitive-National-Business-Products-Distributor

mateo999

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Re: LKQ - LKQ Corp.
« Reply #32 on: August 28, 2018, 06:54:02 PM »
Thanks for flagging the GPC spin. I think esnd is probably a short here. Anyone look at this?

Jurgis

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Re: LKQ - LKQ Corp.
« Reply #33 on: September 24, 2019, 11:56:11 AM »
ValueAct acquired 5.2% position (highlighted in this week's Barron's). Stock jumped a bit.

I took a look at Morningstar numbers.
The 10 year growth is impressive. The current FCF (including acquisitions) / EV is not that great.
Since it seems from this thread that growth was acquisition driven, I'll probably pass. Just wanted to bump the thread anyway.  8)
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