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) -- Shares of

Monro Muffler

(MNRO) - Get Monro Inc Report

got a lift on Tuesday as Cabrera Capital Markets initiated coverage of the Rochester, N.Y.-based automotive services provider with an outperform rating and a 12-month price target of $40.

"We believe that the combination of mid single digit same-store sales growth, new organic store openings, and acquisitions will lead to at least 15% top line CAGR

compound annual growth rate over the next five years," the firm said in the research note accompanying the initiation.

The stock rose 2.5% to $32.42 in Tuesday's regular session on volume of around 220,000, below the issue's trailing three-month daily average of roughly 280,000. Year-to-date the shares have fallen almost 9%, although they are 32% in the past year. The stock reached a 52-week high of $36.49 on Dec. 21.

Cabrera Capital said Monro Muffler already has the highest operating margins in the industry, and it believes the company could potentially capture an additional 150 to 200 basis points through cost efficiencies and vendor negotiations.

For Monro Muffler's fiscal fourth quarter ending this month, Cabrera Capital expects earnings of 26 cents a share, a penny above the current average estimate of analysts polled by

Thomson Reuters


This latest initiation just adds to the bullishness about Monro Muffler as five of the six analysts already covering the stock have strong buy ratings, and the median 12-month price target was sitting at $38, implying upside of more than 15% from current levels.

Monro Muffler has come in ahead of Wall Street's consensus profit view for seven straight quarters, most recently posting earnings of 35 cents a share for its fiscal third quarter on Jan. 23, 10% above the analysts' estimate of 32 cents a share.

Cabrera Capital already likes the stock's valuation at 18.1x the firm's fiscal 2012 profit estimate of $1.75 a share and said continued upside in earnings per share is possible through margin improvements and efficiencies created by acquisitions. That would likely lead to a higher P-E multiple, the firm said.

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"We believe that it

Monro Muffler's stock could expand its multiple to a range of 21x-22x over the next 12 months, which would equate to our $40 price target," Cabrera Capital said.

Monro Muffler operates more than 780 locations in the United States, according to its

Web site

, providing under-car repair services such as oil changes and brake replacements, as well as tire services.

The company's net income for the three months ended Dec. 25 was $11.1 million, or 35 cents a share, on sales of $165.5 million, up 8.4% from a year earlier. Gross margin came in at 39.1% for the quarter, up from 38.3% in the same period a year earlier. Monro Muffler's own projection for its fiscal fourth quarter was for earnings of 22 to 26 cents a share in the March period with same-store sales growth ranging from 2%-4%.

Monro Muffler's publicly traded competitors include



, which trades at a forward P-E multiple of 21.5x; and

Pep Boys

(PBY) - Get Prospect Capital Corporation 6.25 % Notes 2018-15.06.28 Report

, which trades at 15.4x the current consensus profit view for fiscal 2011.


Written by Michael Baron in New York.

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Michael Baron


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