Are Auto Repair Stocks BREAKING DOWN?

Americans continue to drive their cars longer than ever before. A new report by Experian Automotive, a leading global information services company, says the average age of vehicles in the United States hit a fresh all-time high. Between a stalling economy and better technology, car owners are delaying brand new purchases. Investors capitalized from this trend over recent years by betting on auto repair stocks, but the strategy appears to be running out of gas.

According to the report, Experian says the average age of the 245 million vehicles registered in the U.S. for the first-quarter of this year was 11 years, compared to 10.8 years in the same quarter last year. In fact, more than 52 million cars and trucks are at least 16 years old. Experian also found that more Ford Motor Co. (NYSE:F) models are on the road than any other model, followed by Chevrolet (NYSE:GM), Toyota Motor Corp. (NYSE:TM) and Honda Motor Co. (NYSE:HMC).

Due to the theory that since Americans are holding onto their vehicles longer they must be willing to repair them more, auto parts and repair stocks have raced higher for years. Shares of Autozone Inc. (NYSE:AZO) and Advance Auto Parts Inc. (NYSE:AAP) have surged 139 percent and 55 percent over the past three years, respectively. However, that theory, along with auto stocks, came to a screeching halt on Wednesday.

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O’Reilly Automotive Inc. (NASDAQ:ORLY), a leading retailer in the automotive aftermarket industry, crashed more than 14 percent yesterday, after the company lowered its second-quarter same-store sales guidance to 2 percent to 2.5 percent, down from 3 percent to 5 percent. Greg Henlsee, CEO and Co-President stated, “Our previously announced second-quarter comparable store sales guidance reflected our slow start to the quarter in April due, we believed, to the shift of some business into the first quarter as a result of the early spring weather in many of our markets.” Furthermore, O’Reilly expects earnings per share for the second-quarter to be in the lower end of the previously announced range of $1.13 to $1.17. The results will be announced after the closing bell on July 25.

The announcement also weighed on Autozone Inc. and Advance Auto Parts Inc., which both closed in the red on Wednesday. Pep Boys (NYSE:PBY) shares managed to avoid the pile-up and closed 2.64 percent higher. Although O’Reilly gave investors the perfect reason to book profits, some analysts are still bullish on the sector. Michael Lasser from UBS explains, “I think this is a great opportunity to get involved with the names. I think it is mostly weather related. We just went through a winter that was second warmest on record, and so it led to less parts failure. This condition will probably last a couple more months, but once we get into the fall, it will revert to historic growth rates and these stocks should be very well positioned for that.”

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