Shares of Monro Muffler (NASDAQ:MNRO) are down 4% over the last month as the company missed earnings. Its 1Q 2015 earnings came in at $0.52 (missing $0.54 consensus) and revenues were $217.5 million (below $222 million consensus).
Shares are up nearly 13% since our October article. We still see fair value as closer to $28, suggesting over 45% downside. However, we believe a rising tide has lifted all boats, including Monro's stock. The harsh winter was a big driver of the company's improvement in service revenues and comp store sales growth. However, this is a one-time spike.
As noted in October, we believe that acquisitions are masking the company's internal weakness, and that it was overly exposed to the tire business. Its key revenue driver, tires, was weak last quarter. But Monro continues to make acquisitions in the area. For 1Q 2015, it bought up 35 The Tire Choice stores. Thus far, Monro's fiscal 2015 acquisitions generate over 45% of revenues from tires on a combined basis. Tires have lower margins than service and parts.
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