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Earnings estimates have been soaring for Advance Auto Parts (AAP) after the company delivered its fifth straight earnings beat and provided encouraging guidance for 2014.

It is a Zacks Rank #1 (Strong Buy) stock.

While shares of Advance Auto Parts have been surging since its latest beat, the valuation picture still looks very reasonable, providing investors with plenty of additional upside potential.

Advance Auto Parts is the largest automotive aftermarket parts provider in North America, serving both the do-it-yourself and professional installer markets. It operates 5,297 company-operated stores, 105 Worldpac branches, and services approximately 1,400 independently owned Carquest branded stores.

Fourth Quarter Results

Advance Auto Parts reported its fourth quarter results on February 6. Adjusted earnings per share came in at 94 cents, crushing the Zacks Consensus Estimate by 16 cents. It was a 7% increase over the same quarter last year.

Sales rose 6% to $1.409 billion, beating the consensus of $1.383 billion. The increase was primarily driven by the net addition of 151 new stores over the past 12 months and an acquisition. Same-store sales inched up by +0.1%.

Adjusted gross profit as a percentage of sales slightly declined to 49.8%. Meanwhile, adjusted selling, general and administrative expenses increased from 41.4% to 41.7% of sales. This led to a decrease in the adjusted operating profit margin from 8.5% to 8.1%.

Estimates Soaring

Management provided encouraging financial guidance for 2014 in its Q4 press release. The company expects adjusted EPS between $7.20 and $7.40 on flat to low single digit same-store sales growth.

This prompted analysts to revise their estimates significantly higher for Advance Auto Parts, not just for 2014 but for 2015 too. This sent the stock to a Zacks Rank #1 (Strong Buy).

The 2014 Zacks Consensus Estimate is now $7.50, up from $6.64 sixty days ago. The 2015 consensus is currently $8.34, up from $7.93 over the same period. Based on the estimates, analysts are projecting 32% EPS growth this year and 11% growth next year.

You can see the sharp increase in consensus estimates for Advance Auto Parts over the last several months in its "Price & Consensus" chart. The company has delivered five consecutive positive earnings surprises:

Reasonable Valuation

Shares of Advance Auto Parts are up more than 13% since its Q4 earnings report. But the valuation picture still looks reasonable with shares trading at 16x 12-month forward earnings, a discount to the industry median of 18x.

Its price to cash flow ratio of 15x is also well below the industry multiple of 25x.

The Bottom Line

With excellent earnings momentum, strong growth projections and reasonable valuation, Advance Auto Parts still offers investors plenty of upside potential.

ADVANCE AUTO PT (NYSE:AAP): Free Stock Analysis Report

Source: Zacks' Bull Of The Day: Advance Auto Parts