Motorcar Parts Shifting Gears

 | Jun 12, 2013 | 1:30 PM EDT  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

mpaa

,

dorm

I unveiled at the beginning of the year my Winning Value Portfolio for 2013, a group of 10 stocks that I believed could outperform the market.Thanks to a strong market start so far this year, nine out of the 10 securities have logged in healthy advances.

The lone laggard was Motorcar Parts of America (MPAA). It's a laggard no more and over the course of the year, it could turn into a standout. MPAA is a $110 million manufacturer and remanufacturer of aftermarket automotive parts. The company's shares jumped earlier this week by over 12% on news that MPAA was placing a subsidiary into voluntary bankruptcy. The market cheered the news.

A couple of years ago, MPAA acquired Canadian auto parts maker Fenco. The deal proved painful from the beginning. Accounting and audit issues due to the acquisition forced MPAA to delay filings, a fact the market didn't like. Trading for as high as $15 a couple years ago, shares fell to below $4.

Fenco continued to lose money and the acquisition required MPAA to lever up its balance sheet. Earlier this week, management decided that the best thing to do was throw in towel and extract Fenco from its operations. The market cheered the news. For MPAA, the news could continue to get better and shares could find themselves back above $10 by the end of year.

Motorcar's core business, starters and alternators, is doing quite well. Management expects record sales of over $200 million for the fiscal year along with earnings before interest, taxes, depreciation and amortization of $20 million to $30 million. At the current moment, MPAA has an enterprise value of $215 million but some of the debt that is tied to the bankrupt subsidiaries will go with them when they are placed in Chapter 7 bankruptcy. So on an EV to EBITDA basis, MPAA will look very attractive without Fenco, trading at approximately 5-to-7x EV/EBITDA. Dorman Products (DORM) trades at nearly 14x EV. MPAA will also have $19 million in cash.  

The market was right in cheering news of the bankruptcy. But the story will get better for MPAA. The company is better off focusing on its core electrical segment. In addition MPAA will realize some tax loss benefits that should preserve future income.

The net effect is that after years of uncertainty because of Fenco, the market will start to feel a little more certain about the potential of MPAA. The company should begin to benefit from higher multiples as it returns back to its core business.

Columnist Conversations

FCEL closed trading at $2.24, down small with IV30™ up 8.1%. This is a follow up to a story I posted on ...
Lang:
The chart of Delta looks very good and we have seen good option flow recently. This airline stands out among ...
mark mobius on market watch (dow jones) says buying baba is "not a good idea" due to his take on baba's corpor...
Mike Paulenoff's comments on Tarrget (TGT) prove once again how fast investor sentiment, and stock prices, can...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.