Why Pep Boys - Manny, Moe & Jack Stock Soared 22% in June

By Demitrios KalogeropoulosFool.com

What: Pep Boys stock jumped 22% higher during the month of June, according to S&P Capital IQ data. That rally pushed shares into solidly positive territory for the year: Pep Boys is now beating the market by three percentage points during the last 52 weeks.

PBY data by YCharts.

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So what: Shares rose after the auto parts and services chain posted first-quarter earnings results on June 8. In that announcement, Pep Boys kept its streak of comparable-store sales growth alive -- but just barely. Comps improved by 0.8% in the first quarter after climbing 1.3% higher in the prior quarter.

Three months ago, interim CEO John Sweetwood said that Pep Boys was beginning a "turn around in the business," and investors could see hints of that rebound this quarter. Gross profit held steady at 25% of sales. Meanwhile, lower expenses helped operating margin more than double, to 2.4% of sales.

Now what: Wall Street analysts expect a similar showing for Pep Boys' fiscal second quarter. Sales should tick higher by less than 1% as the retailer earns a solid profit after barely managing to break even in the year-ago period. Improvements in its commercial, fleet, and tire services sales should lift earnings during the long term.

However, investors might not get to participate in Pep Boys' business recovery for long. Management announced in late June that it has received several inquiries about a potential merger or sale of the company. Those requests triggered a strategic review by the board of directors to discuss Pep Boys' future as a stand-alone enterprise. "We have determined that it is prudent to explore strategic alternatives to determine the best opportunities for enhancing shareholder value," the company said.

Given the improving operations, this might be a good time for management to secure a premium price for the business. The stock is valued at more than 40 times the expected $0.25 in per-share profit it should earn this year. Any acquiring company will likely have to pay a steep price for Pep Boys' 800 automotive servicing locations across the U.S.

The article Why Pep Boys - Manny, Moe & Jack Stock Soared 22% in June originally appeared on Fool.com.

Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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