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Auto parts retailers have time and again delivered years of top and bottom line growth. They are poised to produce steady financial gains this year as well. This is because the average age of cars is expected to remain at a record high of 11.4 years in 2015, according to IHS Automotive.

Increase in Number of Miles Driven

According to the latest report by the Department of Transportation, U.S. vehicle miles driven increased 2.6% year-over-year in Oct 2014, its eight straight month of gains. The number of miles traveled also went up 0.9% year to date through Oct 2014.

Increased traveling and aging vehicles have also resulted in wear and tear. This in turn increased demand for automotive service and maintenance parts. According to Auto Care Association, the U.S. light vehicle auto care market is positioned to accelerate to $254 billion this year, more than $246 billion last year.

Drop in Gasoline Price

According to the US Energy Information Administration (EIA), the price elasticity of motor gasoline is within the range of -0.02 to -0.04 in the short term. This means a 25% to 50% decline in price of gasoline will result in 1% rise in automobile travel.

At present, average price for unleaded gas in the U.S is $2.12 per gallon. Hence, from 2014’s peak of $3.70 a gallon on Jun 23, the fall in gasoline price is more than 70% to date.

Moreover, the EIA estimates gas prices will average $2.60 per gallon in 2015, a drop of 23% when compared to last year. The slump in oil prices resulted in a drop in gasoline prices. Abundant supply of oil dragged oil prices below the psychological level of $50 a barrel.

The Gulf of Mexico (GoM) is home to promising U.S. oil facilities around the world. It is also often exposed to hurricanes. However, of late the GoM hasn’t seen much hurricane activity. This has resulted in less supply disruption of oil leading to low gasoline prices. Further, U.S. refineries make winter-blend gasoline between September and October every year. Winter gasoline is the cheapest, and Americans use this until spring.

Low gasoline prices also compel consumers to use a repair shop rather than service their vehicles on their own. This results in a shift from Do-It-Yourself segment to Do-It-For-Me segment. Additionally, lower gas prices increase disposable income, freeing up more than $40 billion for deferred vehicle maintenance. These factors put the auto parts industry in an advantageous position.

Economy Improves, Chill Brings Cheer

GDP has gradually recovered from the 2.9% contraction in the first quarter of 2014 to 5% growth in the third quarter of 2014. The economy also added 2.9 million jobs in 2014. This turned out to be the strongest year for jobs growth since 1999. These factors contribute toward increasing the purchasing power of the consumer.

Currently, Americans are experiencing severe winter weather. Cold weather becomes a boon for the auto parts market as it is hard on vehicles. Severe winter damages car batteries, increases viscosity of motor oil, and freezes transmission oil and brake fluid. Similarly, demand for windshield wipers also goes up.

Threats Are Overstated

U.S. light vehicle sales touched 16.44 million units in 2014, the highest level since 2006. Further, sales of light vehicles are expected to hit 17 million units this year. In theory, the aftermarket parts industry suffers as its demand falls on a rise in new vehicle sales. However, the industry is not being affected — people who are buying new cars are keeping old cars or selling them to others.

E-commerce is also supposed to adversely affect the aftermarket parts industry. However, most consumers are impatient. Hence, when it comes to fixing their cars they prefer purchasing parts immediately, rather than waiting for online deliveries.

3 Prominent Picks

O’Reilly Automotive Inc. ( ORLY ) is a specialty retailer and supplier of automotive aftermarket parts, tools, equipment and accessories to both do-it-yourself customers and professional mechanics. The current Zacks Consensus Estimate for fourth-quarter 2014 is $1.67 per share, resulting in expected 19.2% growth from the prior-year period. The stock has a positive earnings surprise of 4.2% over the trailing four quarters.

The Zacks Rank #1 (Strong Buy) stock soared almost 50% last year. The forward price-to-earnings ratio (P/E) for the current financial year (F1) is 22.3.

Advance Auto Parts Inc. ( AAP ) is also a specialty retailer of automotive parts, accessories and maintenance items to do-it-yourself customers. The current Zacks Consensus Estimate for fourth-quarter 2014 is $1.5 per share, a whopping expected 59.6% higher than the prior-year period. The stock has a positive earnings surprise of 7.3% over the trailing four quarters.

The expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock this year is 36.3%. The stock gained almost 45% last year. It has a P/E (F1) of 18.2x.

Douglas Dynamics, Inc. ( PLOW ) designs, manufactures and sells snow and ice control equipment for light trucks, which is comprised of snowplows and sand and salt spreaders, and related parts and accessories. The current Zacks Consensus Estimate for fourth-quarter 2014 is 43 cents per share, resulting in expected 11.8% growth from the prior-year period. The stock has a positive earnings surprise of almost 150% over the trailing four quarters.

The expected earnings growth rate for this Zacks Rank #1 (Strong Buy) stock this year is 201.9%. The stock gained 26.1% last year. It has a P/E (F1) of 19.1x.

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