LKQ CorporationLKQX

Morningstar Rating

Stock Research and Analysis

by David Whiston, CPA, CFE

LKQ has grown quickly, through acquisitions as well as internally, to become one of the leading providers of recycled and aftermarket auto parts to collision centers. After acquiring its largest aftermarket competitor, Keystone Automotive, LKQ will Read more

Bulls Say

The settlement agreement with Ford F regarding the carmaker's patent case enables LKQ to be the sole U.S. distributor of non-OEM aftermarket Ford collision parts protected by Ford patents. LKQ must pay a royalty to Ford for each part sold until the agreement expires in September 2011.

State Farm Insurance left the aftermarket business after losing a lawsuit in 1999 relating to not using OEM parts to repair damaged vehicles. The Illinois Supreme Court reversed this decision in 2005, and the U.S. Supreme Court refused to hear the case in 2006. Management is convinced that State Farm will re-enter the aftermarket business soon, which would boost top-line growth.

If successful, the Last Look program will help the company solidify and expand relationships with insurance companies and repair shops and strengthen LKQ's brand as the one-stop shop for alternative repair parts.

LKQ can keep acquiring firms with little to no competition. Read more

Bears Say

LKQ is a young public company that makes lots of acquisitions, so it is in a high-risk environment for earnings smoothing.

The Detroit Three and their suppliers could procure more parts from Taiwan to narrow the cost advantage currently enjoyed by LKQ aftermarket products.

Over the long term, the firm could be threatened by local recycling companies forming alliances that could help them to match LKQ in price or product offering.

If the Justice Department ever forces LKQ to comply with the Anti Car Theft Act, it will burden the company with a distraction and higher expense to keep records on most of its inventory.

The market has paid a premium for LKQ's earnings in the past, which means bad news may cause the share price to tumble, as is typical with growth companies. Read more

Strategy

LKQ seeks to be the leading provider of recycled OEM parts and aftermarket products to insurance companies and repair shops. As the industry is very fragmented, LKQ seeks to buy the leading provider Read more

Management

Joe Holsten, 56, has been president and CEO since 1998. The rest of the management team has extensive auto-parts industry experience. We like that the chairman and CEO roles are separated and that directors and officers own more than 5% of the company, Read more

Profile

LKQ is the largest provider of recycled light-vehicle products and collision repair aftermarket parts in the United States. About 34% of sales come from recycled parts, Read more

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