The aging vehicle fleet continues to drive growth for the Zacks Automotive Replacement Parts industry as consumers focus on replacing faulty components to keep older cars functional. The increasing complexity of modern, tech-driven vehicles further expands opportunities for the sector. Additionally, high interest rates and affordability concerns are encouraging repairs over new vehicle purchases, boosting demand. The industry’s valuation is also attractive compared to the sector and the S&P 500. Industry players like Dorman Products DORM and Standard Motor Products SMP stand out, supported by strategic acquisitions and shareholder-focused initiatives.
Industry Overview
The Zacks Automotive - Replacement Parts industry comprises companies that engage in the production, marketing and distribution of replacement components for the automotive aftermarket. The industry players offer replacement systems, components, equipment and parts to repair as well as accessorize vehicles. Some important auto replacement components are engine, steering, drive axle, suspension, brakes and gearbox parts. The auto replacement market is somewhat less exposed to business downturns as consumers are more inclined to spend on replacement parts to maintain their vehicles rather than splurge on new ones. Consumers can either opt for repairing vehicles on their own or can avail professional services for the same. The industry is undergoing a radical change, with evolving customer expectations and technological innovation acting as game changers.
Key Investing Themes
Increasing Longevity of Vehicles: In 2024, the average age of vehicles in the United States hit an all-time high of 12.6 years, marking seven consecutive years of growth. Older vehicles typically need more frequent repairs and maintenance, driving demand for automotive replacement parts and services. This aging fleet has become a significant growth catalyst, as keeping older cars safe and functional requires continuous spending, creating opportunities for companies in the replacement parts industry.
Technology Opening Up New Avenues: The automotive industry's shift toward electrification, autonomy, and digitization is transforming the replacement parts market. Modern vehicles require advanced components like sensors, electronic systems, and software-driven parts. This shift has increased the need for skilled technicians and advanced diagnostic tools, reshaping aftermarket dynamics and creating new growth opportunities within the auto replacement parts industry.
Affordability Issues to Drive Repairs: Affordability challenges are expected to persist in 2025, with inflation remaining elevated and interest rates declining more gradually than anticipated, as indicated by Fed Chair Jerome Powell's cautious outlook. Additionally, proposed tariffs under the Trump administration could push vehicle prices higher. These factors may encourage vehicle owners to opt for repairs over purchasing new cars, driving increased demand for replacement parts.
Favorable Zacks Industry Rank
The Zacks Automotive – Replacements Parts industry is part of the broader Zacks Auto-Tires-Trucks sector. The industry currently carries a Zacks Industry Rank #29, which places it in the top 12% of around 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
Before we present a couple of stocks from the industry worth considering for your portfolio, let's take a look at the industry’s stock market performance and current valuation.
Industry Lags Sector and S&P 500
The Zacks Automotive – Replacement Parts industry has underperformed both the Auto, Tires and Truck sector and S&P 500 composite over the past year. The industry has declined 17% against the S&P 500 and sector’s growth of 27% and 29%, respectively.
One-Year Price Performance
Industry's Current Valuation
Since automotive companies are debt-laden, it makes sense to value them based on the EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. On the basis of trailing 12-month enterprise value to EBITDA (EV/EBITDA), the industry is currently trading at 8.8X compared with the S&P 500’s 18.84X and the sector’s trailing 12-month EV/EBITDA of 22.78X. Over the past five years, the industry has traded as high as 12.47X, as low as 6.89X and at a median of 10.42X, as the chart below shows.
EV/EBITDA Ratio (Past Five Years)
2 Stocks in Focus
Dorman Products: It is a key player in the motor vehicle aftermarket industry, focusing on replacement and upgrade parts. The company has been consistently broadening its product offerings, adding hundreds of new direct replacement parts and assemblies designed to meet or exceed original equipment performance. The acquisition of Super ATV has bolstered the company's overall prospects, supported by a strong balance sheet, a debt-to-capitalization ratio of 28% (compared to the industry average of 56%) and ample liquidity. Investor-friendly moves via share buybacks further instill confidence. DORM currently sports a Zacks Rank #1 (Strong Buy) and a Value Score of B.
The company surpassed earnings estimates in each of the trailing four quarters, the average surprise being 35%. The Zacks Consensus Estimate for Dorman’s 2025 sales and earnings implies year-over-year growth of 4% and 9%, respectively. The consensus mark for 2025 EPS has moved north by 88 cents over the past 60 days.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: DORM
Standard Motors: It is one of the leading manufacturers and distributors of premium automotive replacement parts for engine management and temperature control systems.The acquisition of Nissens will help SMP expand its geographic presence, establish a significant global growth platform and improve cost savings efforts. Expansionary initiatives will offer the firm increased capacity to support future growth, reduce risk through a multi-point distribution strategy and enhance product delivery times in specific geographical areas. Standard Motor’s long-term debt-to-capital ratio of 0.17 is lower than the industry’s 0.37. The company repurchased $10.4 million of shares in the first nine months of 2024.
SMP surpassed earnings estimates in three of the trailing four quarters and missed on the other, the average surprise being 3.8%. The Zacks Consensus Estimate for Standard Motors’ 2025 sales and earnings implies year-over-year growth of 2.3% and 11.3%, respectively. The stock currently carries a Zacks Rank #3 (Hold) and has a Value Score of A.
Price & Consensus: SMP
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