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Letter to the Editor

What's Looking Up?

Two of the stocks that have shown significant increases in value have been Keystone Automotive and LKQ Corp., both suppliers to the Automotive Aftermarket. Keystone stock is up 23 percent for the year and LKQ stock is up 15 percent.

In comparing the performance of these two companies it is important to first differentiate their product lines. Keystone, with the exception of refurbished wheels and bumpers, is primarily a marketer of new collision repair replacement parts which our best estimate would be approximately 75 percent of estimated annual sales for the current fiscal year of $600 million. The remaining sales are made up of paint and refinish materials, approximately $60 million, and new and refurbished wheels of $50 million.

Materials sales appear to be relatively flat, while body parts, including headlamp assemblies, bumpers, and wheels, all have shown double digit sales growth.

LKQ Corp., with annual sales of approximately $550 million, is about ten percent less in sales than Keystone. LKQ’s focus has been, and remains, the salvage industry, with sales to both general repair facilities and collision repair shops. However, LKQ Corp.’s annual report and 10K do not break out the percentage for each.

LKQ appears to be moving to become a significant competitor of Keystone in the new aftermarket body parts segment of the Collision Repair Market, with recent acquisitions and inventory additions in a number of its yard facilities.

I expect that both of these companies in 2006 will show “same store sales growth” of approximately 11 percent over their comparable 2005 figures.

Both stocks sell at a relatively large PE ratio of approximately 33, which is high for suppliers to the automotive aftermarket, and are in fact the two companies with the highest PE ratio on our stock review page.

Our refinish paint companies had a pretty good month, with only DuPont’s per share price down a hair YTD. BASF’s change in stock price was up less than one percent from January, but Akzo Nobel, PPG, Sherwin-Williams, and Valspar share prices were all up almost ten percent or better from January 1 levels.

Our collision-related insurer stocks are not shining brightly again this month. The timing seems just a bit odd for Progressive’s newly announced approval of a 4-for-1 stock split to be effected in the form of a stock dividend in mid-May.

-Charles Baker-

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