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This $2.4 Billion Company Is About to Get a $1.2 Billion Payday. Here’s Why I Couldn’t Be More Optimistic

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Autozone and O’Reilly are the two giants in the car-parts retail space. These two companies have market capitalizations of $53 billion and $71 billion, respectively. By comparison, Advance Auto Parts (NYSE: AAP) is tiny with its market cap of just $2.4 billion. But this value disparity is somewhat surprising.

Advance has almost 4,800 locations, while Autozone has nearly 7,400 and O’Reilly has around 6,200. So the latter two are bigger, but not by the margin that the market valuations would suggest.

For its part, Advance has problems that can’t be sugarcoated. But it’s working to fix them. And it’s about to get a $1.2 billion payday to help fund its turnaround, which is an unbelievable amount for a company with such a low valuation.

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How is Advance getting a big payday?

On top of its namesake retail chain, Advance also owns other businesses, namely Carquest and Worldpac. Last year, the company hired CEO Shane O’Kelly, who’s trying to restructure the business. This restructuring includes selling the Worldpac business.

In August, Advance reached a deal to sell Worldpac for $1.5 billion. Taking transaction expenses into account, the company will net about $1.2 billion — half of its current market cap. The deal is expected to close in the fourth quarter.

Advance says that Worldpac has generated $2.1 billion in trailing-12-month revenue and has earned $100 million in earnings before interest, taxes, depreciation, and amortization (EBITDA). This means that Advance sold it for 0.7 times its sales and 15 times its EBITDA.

That’s more than a fair sales price. For perspective, Advance stock trades at 0.2 times sales and at about 7 times EBITDA. So the sales price for Worldpac represents a significant premium to where Advance stock itself trades today.

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How Advance’s windfall can help

O’Kelly says that selling Worldpac gives Advance more “financial flexibility” as it navigates the changes it needs to make. And to be sure, the changes are going to be substantial.

They need to be, considering how poorly Advance has performed relative to its peers. Take one metric: the operating-profit margin. For the past decade, both Autozone and O’Reilly have had operating margins mostly between 18% and 20%. By comparison, Advance has averaged an operating margin of about 6%, and it’s fallen even lower than that lately.

AAP Operating Margin (TTM) Chart

AAP Operating Margin (TTM) Chart

Advance hired O’Kelly to fix this profitability problem. The new CEO is a supply chain expert and quickly realized that Advance is struggling with profitability because of its inefficient supply chain infrastructure.

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A multiyear supply chain transformation is already underway for Advance, and I’m optimistic that this will completely transform returns for shareholders.

Consider that if Advance can squeeze a 10% margin from its business — still half of what its peers have — it can generate close to $1 billion in annual profits. After all, even after selling Worldpac, Advance still generates over $9 billion in annual sales. And if the stock is valued at 10 times its operating profit, then shares could quadruple in value in this scenario.

Therefore, restructuring the supply chain is crucial for Advance and its shareholders. But it’s costly, and the company’s balance sheet isn’t the greatest. It has almost $1.8 billion in long-term debt and less than $500 million in cash and equivalents. To be clear, it’s not in danger of running out of liquidity anytime soon. But this is an unattractive net-debt position nonetheless.

Selling Worldpac will even out Advance’s balance sheet and give it just a little more breathing room. And this breathing room will allow management to make the business decisions that will set it up best for long-term success.

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This is why I couldn’t be more optimistic about Advance stock now that it’s selling Worldpac. And if the turnaround is successful, the stock is trading at quite the bargain valuation today.

Should you invest $1,000 in Advance Auto Parts right now?

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Jon Quast has positions in Advance Auto Parts. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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This $2.4 Billion Company Is About to Get a $1.2 Billion Payday. Here’s Why I Couldn’t Be More Optimistic was originally published by The Motley Fool



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Do millionaires keep their money in checking accounts?

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Do millionaires keep their money in checking accounts?


The habits of millionaires are a topic of interest when it comes to financial advice. After all, unless they received a large chunk of money as an inheritance or gift, most millionaires had to be smart with their money to get where they are.

Learning how millionaires accumulate wealth — and where they keep it — can provide valuable insights for anyone focused on growing their money. One common question is whether or not millionaires keep money in checking accounts.

Studies show that in recent years, millionaires are keeping a significant portion of their wealth in cash. According to CNBC’s , that portion was about 24% in 2023. While this doesn’t necessarily mean a quarter of a millionaire’s wealth is sitting in a checking account, it does indicate the importance of maintaining liquid assets. And a checking account can be a helpful tool for doing so — whether or not you’re a millionaire.

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Anyone, regardless of net worth, can find value in a checking account. Checking accounts allow unlimited deposits and withdrawals, check writing, bill pay, and other features to help you manage your money day-to-day.

While millionaires may keep large portions of their wealth in other deposit accounts and investments, some may use a checking account to manage daily spending. Millionaires also recognize the importance of having liquid assets, like funds in checking and savings accounts. Accessible cash lets you cover unexpected expenses without needing to sell off investments, borrow money, or pay a penalty for tapping your retirement savings early.

The amount of money a millionaire keeps in their checking account is highly personal and depends on preference. However, because checking accounts rarely earn competitive — if any — interest, some millionaires intentionally limit their checking account balance. Some may choose to keep the bare minimum, such as a couple of months’ worth of essential expenses, in their checking accounts, keeping the rest of their wealth in more lucrative assets.

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Regardless of preference, it would be surprising for a millionaire to keep more than $250,000 in a single checking account. That’s because the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per institution, per account holder.

While millionaires may use checking accounts for day-to-day financial transactions, they may also use some of the following accounts in addition to, or in place of, a checking account:

  • Savings accounts: Like checking accounts, savings accounts provide a high degree of liquidity, allowing you to access your money as needed for regular or unexpected expenses. High-yield savings accounts, in particular, give millionaires an extra bang for their buck. Some of the best accounts currently offer rates upwards of 4% versus the national average savings account rate of 0.46%.

  • Cash management accounts: Cash management accounts (CMAs) pay competitive interest rates while maintaining more accessibility than a savings account. Some CMAs come with a debit card and ATM access, and many provide extended FDIC coverage limits by “sweeping” additional deposits into partner banks. CMAs are available at brokerages, not banks, facilitating easy transfers between investment and cash accounts.

  • Money market accounts: Similar to CMAs, money market accounts combine features of checking and savings accounts, often paying competitive interest rates and providing check writing and ATM access. Banks and credit unions offer these accounts, which are federally insured. Minimum opening deposit and minimum balance requirements are often higher than those for standard savings accounts.

  • Retirement and tax-advantaged accounts: Millionaires understand the importance of investing for their later years, and retirement accounts such as 401(k)s and IRAs allow them to do so in a tax-advantaged way. Some retirement accounts, like 401(k)s, are offered by certain employers. Others, such as traditional and Roth IRAs, are available to anyone.

  • Brokerage accounts: The IRS limits contributions to tax-advantaged accounts, and millionaires typically invest beyond these limits. They do so with taxable brokerage accounts, which can hold investments such as stocks, bonds, and mutual funds without contribution limits.

  • Other investments, like real estate, commodities, and art: Some millionaires may decide to diversify their portfolio with other investment types. These could include real estate investments, such as investment properties or real estate investment trusts (REITs); commodities, such as metals or energy products; art; and more.

The amount of money millionaires keep in their checking accounts depends on personal preference. While some millionaires may keep six figures in their checking account to maintain a comfortable cash cushion, others may choose to keep the bare minimum in checking. You wouldn’t expect millionaires to keep more than $250,000 in a checking account, however, because balances over this threshold aren’t typically insured.

There’s no single bank that’s a favorite among millionaires; it’s another matter of preference. However, millionaires are likely to bank with institutions that offer private banking to those who meet specific financial requirements. Private banking may include wealth planning services, waived fees, dedicated bankers, and additional perks. J.P. Morgan Private Bank, Citi Private Bank, and Bank of America Private Bank are among some of the most popular banks for millionaires.

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Billionaires may have checking accounts, but they likely use accounts that cater to ultra-high-net-worth individuals. These accounts may come with perks such as a dedicated banker, waived fees, and competitive interest rates. Alternatively, billionaires may opt for a cash management account with higher FDIC insurance coverage limits and checking account features.

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No rule says you can’t have a million dollars in a checking account, but FDIC insurance typically only covers up to $250,000. Plus, you can get a bigger return on your investment by keeping $1 million elsewhere. One alternative is a cash management account, which acts like a checking account but generally earns higher interest. Plus, many cash management accounts insure more than the standard $250,000 by sweeping funds into multiple partner banks.

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Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions

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Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions


Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions

Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions

Lumen Technologies, Inc. (NYSE:LUMN) shares are trading higher on Monday after the company announced it is partnering with Meta Platforms, Inc. (NASDAQ:META) to significantly increase Meta’s network capacity and help drive its AI ambitions.

Lumen’s partnership offers Meta enhanced flexibility with secure, on-demand bandwidth, supporting its complex computing requirements and enabling it to serve billions daily.

Ashley Haynes-Gaspar, Lumen’s EVP and chief revenue officer, said, “We’ve transformed our company to meet this demand. As Meta’s customers use more AI services across its platforms, we’re helping provide Meta with a seamless, effortless, and flexible network that will meet its growing needs.”

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Lumen Technologies said its Private Connectivity Fabric enables long-term network capacity for Meta’s AI.

Alex-Handrah Aimé, director of Meta’s Network Investments stated, “Our AI tools are performing increasingly more complex tasks including enabling conversations in a variety of languages and translating text to images in real time, while helping people interact with the world around them in new, immersive ways.”

Read: Chinese Hackers Breach AT&T, Verizon Networks In Major Wiretap Data Theft Putting US National Security At Risk: Report

Lumen will report third quarter 2024 results on November 5, 2024.

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Investors can gain exposure to the stock via Invesco S&P SmallCap Utilities & Communication Services ETF (NASDAQ:PSCU) and First Trust Cloud Computing ETF (NASDAQ:SKYY).

Price Action: LUMN shares are up 9.50% at $7.38 at the last check Monday.

Image via Shutterstock

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This article Lumen And Meta Join Forces To Boost AI With Flexible, On-Demand Network Solutions originally appeared on Benzinga.com

© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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US election optimism fuels $2.2B inflows in crypto products

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US election optimism fuels $2.2B inflows in crypto products


CoinShares said the United States and Bitcoin led crypto investment product dynamics last week amid growing optimism over a potential Republican election win in the US.



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Quantum computer ‘threat’ to crypto is exaggerated — for now

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Quantum computer ‘threat’ to crypto is exaggerated — for now


Bitcoin’s private keys won’t be breached any time soon, but the industry still needs to transition to “post-quantum cryptography.” 



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European investors pour record $105B into US Bitcoin ETFs

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European investors pour record $105B into US Bitcoin ETFs


Despite record European inflows, Bitcoin has been unable to recover above the $70,000 psychological level since July.



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ApeCoin (APE) price jumps 100% on ApeChain launch

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ApeCoin (APE) price jumps 100% on ApeChain launch


Apechain mainnet launch and LayerZero’s integration translated to 100% price upside for APE in recent days.



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