Shares of Advance Auto Parts (AAP) fell 7% on news that credit rating agency Moody’s (MCO) has downgraded the auto parts retailer’s debt.
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Moody’s lowered its rating on Advance Auto Parts senior unsecured debt to Ba1, which is one notch below investment grade. The downgrade comes as Advance Auto Parts undertakes a turnaround strategy for its struggling business.
“The downgrade reflects our expectation for continued very high lease-adjusted leverage, weak interest coverage, and negative free cash flow over the next 12-18 months,” said Moody’s in a statement announcing the debt downgrade.
Store Closures
The downgrade from Moody’s is the latest blow to Advance Auto Parts, whose share price has declined nearly 70% over the past five years. Earlier this November, the company announced that it is closing more than 700 stores by mid-2025 as it restructures amid weak demand for the motor vehicle parts it sells.
Advance Auto Parts is struggling as fewer consumers repair their vehicles, declining interest in electric vehicles, a pullback in consumer spending, and rising competition from Chinese automakers. Recently, the company reported a third-quarter loss of -$0.04 per share. Wall Street expected a Q3 profit of $0.49.
Is AAP Stock a Buy?
The stock of Advance Auto Parts has a consensus Hold rating among 18 Wall Street analysts. That rating is based on two buy, 14 Hold, and two sell recommendations made in the last three months. The average AAP price target of $46.53 implies 11.61% upside from current levels.