LKQ Corporation : A company that mines value from junk cars

LKQ (NASDAQ : LKQ) buys junk cars and sells parts for repairs. These refurbished parts can cost 25% to 50% less than newly manufactured ones. Insurers have increasingly turned to refurbished parts to reduce their repair costs following collisions. LKQ's vast distribution network, built over 16 years through acquisitions and organic growth, gives it key competitive advantages, like faster delivery times and higher in-stock rates than rivals.

U.S. car sales have rebounded to close to prerecession levels, which will boost the number of newer cars on the road, and those are more likely than old cars to be repaired rather than declared total losses after accidents.

LKQ also has excellent opportunities to expand overseas. In Europe, for example, just 7% of parts used after collisions are alternative parts like the ones LKQ sells, versus 38% in the U.S. Last year, LKQ earned $1.06 a share, and Wall Street expects that number to double by 2016. The stock sells for 19 times this year's earnings forecast of $1.37 a share.


The company has good long term prospects and this makes it a good buy. Long term a target of $35 can be given.