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Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:

Engines Revved by Christopher C. Williams

Summary: Advance Auto Parts (NYSE:AAP) sells everything from windshield wipers to car batteries out of its 3,082 stores in 40 states, and is no. 2 in the $204 billion market behind Autozone (NYSE:AZO). Other close competitors are O'Reilly Automotive (NASDAQ:ORLY) and CSK Auto (CAO), vying for the purchases of mainly do-it yourselfers and commercial customers such as mechanics. The whole industry took a hit as gas prices and interest rates rose in 2006, causing car owners to delay any non-imperative repairs. Shares of Advance Auto fell a comparatively high 13% from $44 in March, due to its heavy investment in stores. Following a previous five-year track record of double digit profit gains, the retailer plans to return share prices from its present $37 to the mid-40s by reducing the number of store openings and remodelings. As the average age of vehicles on the road approaches 10 years, wear and tear should bring in customers industry-wide, as the market increases 4-5% a year. At a current 15 times earnings estimates for 2007, the company's earnings are expected to rebound 11% in the year, and long term prospects are likely to grow by low-to-mid double digits. Should management fail, there's still hope for shareholders. According to Citigroup analyst Bill Sims, ".. there is a 25% chance Advance becomes a target for private-equity buyers, given its steady cash flow, relatively low debt levels and attractive valuation." Start your engines.
Related: Advance Auto Parts Needs To Take a Page From O'Reilly's BookAdvance Auto Parts Analyst Day Celebrates 5 Years As a Public Company - What Next?Auto Parts Suppliers: Valuation Check Shows O'Reilly Is Attractive

AAP vs. AZO vs. ORLY vs. CAO 1-yr chart

aap comps chart

Source: Advance Auto on the Road to Repair - Barron's