2 Auto Replacement Stocks Poised to Gain From the Repair Boom

The automotive replacement parts industry is poised for growth due to the increasing age of vehicles on U.S. roads and a potential slowdown in new car sales, which will drive demand for repairs; technological advancements in vehicles are also creating new opportunities, though companies must balance innovation with cost control. Despite underperforming the broader market and sector over the past year, the industry holds a Zacks Industry Rank in the top 9%, signaling solid near-term prospects, with earnings estimates for 2025 moving 2% north since the start of the year. Dorman Products (DORM) and Standard Motors (SMP), both with a Zacks Rank #2 (Buy), are highlighted as stocks to consider, with strong earnings surprise histories and positive growth outlooks.

Analysis

The automotive replacement parts industry presents a compelling outlook, underscored by its Zacks Industry Rank #23, placing it in the top 9% of approximately 250 Zacks industries, and a 2% upward revision in its 2025 aggregate earnings estimates since the beginning of the year, signaling solid near-term prospects. This positive sentiment is driven by several key themes: the increasing average age of U.S. vehicles, now at 12.6 years, which naturally elevates demand for maintenance and repair; a potential deceleration in new car sales, influenced by prospective tariffs and economic uncertainty, which could further channel consumer spending towards vehicle upkeep; and the evolution of vehicle technology, including electrification and autonomous features, creating new demand for specialized components, skilled technicians, and cutting-edge diagnostic tools. While these technological advancements offer significant growth avenues, they also necessitate substantial investment in R&D and skilled labor, making cost management and supply chain efficiency critical for maintaining profitability. Despite these strong fundamentals, the industry has underperformed the broader Auto, Tires and Truck sector and the S&P 500 composite over the past year, declining 5.4% compared to gains of 16.2% and 11.8% respectively. Currently, the industry trades at a trailing 12-month EV/EBITDA multiple of 8.61X, notably below the S&P 500's 16.71X, the sector's 21.62X, and its own five-year median of 10.39X. Specific companies such as Dorman Products (DORM), with forecasted 2025 sales and earnings growth of 5% and 10% respectively, and Standard Motors (SMP), with projected 17% sales and 13% earnings growth for 2025, exemplify firms poised to capitalize on these trends, supported by significant average earnings surprises in the trailing four quarters (28.95% for DORM, 38.55% for SMP) and strategic initiatives like acquisitions.

Key Decisions for Investors

• Investors should recognize the favorable secular tailwinds for the automotive replacement parts industry, including an aging vehicle fleet (average U.S. vehicle age of 12.6 years) and a potential shift towards repairing existing vehicles, which supports sustained demand.
• Given the industry's recent market underperformance (-5.4% over the past year) and current EV/EBITDA valuation of 8.61X, which is below its historical median (10.39X) and broader market comparables, there may be an attractive entry point for long-term positions.
• Consider focused investments in companies such as Dorman Products (DORM) and Standard Motors (SMP), which carry a Zacks Rank #2 (Buy) and demonstrate strong fundamentals, positive earnings growth forecasts for 2025 (DORM: +10% earnings, SMP: +13% earnings), and strategic initiatives aligning with industry growth drivers.
• Closely monitor individual companies' ability to manage innovation-related R&D costs and enhance supply chain efficiencies, as these factors will be crucial for margin protection and competitive positioning in an evolving technological landscape characterized by electrification and autonomous features.