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Letter to the Editor
This article originally appeared in the September 2005 Issue of INSIGHT
Jumping In
Well, the big news this month affecting stock prices is the Illinois Supreme Court reversal of the lower court decision on the Avery - State Farm case.
Keystone Automotive Industries stock jumped almost six dollars since the decision, and, while falling back slightly to $31, it is still a dramatic jump.
Why the jump? Well, obviously the investment community that follows Keystone’s stock is assuming that State Farm will be back specifying aftermarket parts for collision repair, and since State Farm represents over 20 percent of the Auto Physical Damage Insurance market, Keystone sales and profits would be favorably impacted.
Will it happen? We do not know, but the odds are good that State Farm will move carefully and perhaps slowly in increasing its specification of aftermarket sheet metal.
I do not look for any drastic shift until the Fourth Quarter of 2005, and even then I believe the actual impact on Keystone sales will be minimal.
So far this year the big push by most insurers has been for the increased use of salvage parts. Salvage is now estimated to be about seven to eight percent of the dollar value specified in estimates, whether by insurers or by shops writing estimates for their DRP contracts.
Our stock chart this month shows LKQ Corporation’s stock up a whopping 56 percent for the year. My best estimate is that LKQ’s stock will continue to out-perform Keystone for the rest of 2005.
On the vehicle sales side of the industry, both Sonic Automotive and United Auto Group are doing well, perhaps at the expense of the domestic auto manufacturers who are suffering mightily, given the rise in fuel pricing and product lines that in many cases have not caught the eye and pocketbook of the U.S. consumer.
Overall, our U.S. Collision Repair Supplier Index is down just over ten percent from its composite January 1 showing. Suppliers across the nation will be paying more for transportation, with the national average cost of a gallon of gas at $2.69 and climbing.
The Boyd Group Income Fund is at about half of the collision repair facility consolidator’s New Year 2005 price of $7.72 Cdn. In the few months remaining this year, it looks as though the Boyd head office will be continuing to work on centralizing office work and standardizing repair and management work in Boyd’s many locations.
INSIGHT’s U.S. Insurer Index is up ten percent overall YTD, with St. Paul Travelers leading the pack with an almost 20 percent improvement in its stock price since the first of the year. It looks like the insurer has smoothed out the bumps that came along with its decision to combine into one entity some months ago. It remains to be seen if hurricane winds will blow some expensive trouble toward insurers in September and October.
-Charles Baker-
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