Pep Boys: Stock Is Still Cheap

Manny, Moe and Jack (PBY) will be reporting fourth quarter results this Thursday, before the market open. The company updated its guidance three weeks ago, in tandem with its decision to reduce its cash dividend. The Street is expecting PBY to lose 69 cents per share, on revenues of $466 million. Approximately 50% of the loss will be attributable to special non-cash one time charges, such as legal and inventory accruals, cost cutting initiatives, accelerated amortization, asset impairment and a change in income tax rates (definite “garbage” category write offs).

A peek into the future: The company also gave a preview of first quarter sales results, indicating noticeable revenue momentum in its first five weeks-the company said, it is on trend to equal 1st quarter 2008 sales, which is 10% higher than analysts had previously forecast. This could represent an additional $40 million of revenues in the quarter that analysts had not expected, leading to a potential blowout period. If PBY is able to extend this sales momentum into the remaining seven weeks of the quarter, the shares could take off in a big way!

Short interest plummets: Since my last update, PBY’s short interest has decreased almost 25% from 5.5 million shares to 4.2 million shares. This could be a clue that shorts are starting to deduce that being negative these shares presents an inordinate amount of risk and that the smart money now is starting to lean to the long side. The shares are also getting very close to sailing through their 200 day moving average near the $5.50 mark. If successful in doing so, there is no resistance to hold them back until it reaches double digits, so make sure you are strapped in for the ride.

The stock is still cheap: Even though the shares have nearly doubled from their lows, they are still cheap compared to other auto parts retailers. PBY is selling at only .53 of book, .13 of sales and a .70 debt to equity ratio. It retains a respectable dividend yield of 2.70%. ORLY and AAP have an average price to book ratio of 2.75, (AZO wasn’t included, as its shareholder's equity is negative) an average price to sales ratio of 1, and a dividend yield of .60% (ORLY and AZO do not pay a dividend). In terms of debt to equity rankings, PBY’s .70 reading comes in less favorable (a smaller reading is better in this category) than AAP’s .56 ratio and ORLY’s .31 entry.

Disclosure: Long PBY, AAP, AZO and ORLY.

Comments

[Slick Irons:]

I've been BULLish on Pep Boys for several years, and I remain a staunch BULL. I have noticed a great increase in advertising in the Boston area, and would not be surprised, if the company is FOR SALE !!!


SI

Apr 05 10:29 AM

[Mark Krieger:]

PBY is definitely ramping up its advertising endeavors. I have seen a huge increase in radio and print advertising the last three months also. This is a good sign. The company is fianlly getting serious about juicy up revenues.

Apr 05 11:03 AM