LKQ Corporation (LKQ): A Bull Case Theory

We came across a bullish thesis on LKQ Corporation on Waterboy’s Substack by Waterboy. In this article, we will summarize the bulls’ thesis on LKQ. LKQ Corporation's share was trading at $30.47 as of July 29^th. LKQ’s trailing and forward P/E were 11.12 and 9.92, respectively according to Yahoo Finance.

LKQ Corporation (LKQ), currently trading at $32.17 with a market cap of $8.16 billion and an enterprise value of $13.82 billion, is a global leader in automotive parts distribution, specializing in salvaging and reselling parts from wrecked vehicles to collision centers, mechanical repair shops, and insurers. Operating across 1,650 facilities with a workforce of 47,000, LKQ’s core business model benefits from scale, supply chain integration, and a critical role in cost-effective vehicle repairs.

However, the stock recently declined over 20% following lowered financial guidance, as management highlighted macroeconomic headwinds including rising consumer belt-tightening that’s prompting some to reduce auto insurance coverage—leading to fewer repair claims and dampening demand. In response, the company revised its 2024 free cash flow expectations down from $750–$900 million to $600–$750 million.

Even at the revised range, LKQ offers a 7.2% to 9% free cash flow yield on its current market cap, a compelling valuation for a business that has grown EPS at a 13.5% CAGR over the past decade. Additionally, the company has been consistently returning capital to shareholders, reducing its share count by 3% annually since 2018 and currently offering a 3.73% dividend yield.

While the near-term outlook reflects pressure from macro softness, LKQ’s resilient cash generation, shareholder-friendly capital allocation, and entrenched competitive position in a necessary and cost-conscious segment of the auto market suggest the recent selloff may be overdone. The current valuation implies a margin of safety and offers long-term investors an opportunity to buy a durable business at a discount.

Previously, we covered a bullish thesis on LKQ Corporation by Stock Analysis Compilation in November 2024, which highlighted its dominant market position and strong capital returns. The company’s stock has depreciated ~22% since, as macro weakness impacted guidance. The thesis still stands given resilient free cash flow. Waterboy shares a similar view but emphasizes the current undervaluation and long-term durability.

LKQ Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held LKQ at the end of the first quarter which was 40 in the previous quarter. While we acknowledge the potential of LKQ as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.