Pep Boys No Longer Leaking Oil, But Stock's Expensive

NEW YORK ( TheStreet) -- The last time we discussed the state of retailer/auto services giant Pep Boys ( PEP), I raised concerns about what appeared to be leaks in the company's operating model.

Although management had made decent operational progress, the company was still struggling with same-store sales (comps), while margins were compressing. Pep Boys had no answer to the moves made by much nimbler rivals such as Advance Auto Parts ( AAP) and AutoZone ( AZO). Making matters worse was the fact that Wal-Mart ( WMT) was beginning to encroach on both Pep Boys' merchandise business and its services revenue.

Today, however, after a solid fourth-quarter earnings report (in April) Pep Boys has an extra "pep in its step." Since the April release, the stock has been up by as much as 8%. With the company due to report fiscal first-quarter earnings on Tuesday, investors are looking for more gains. But the stock is not cheap -- not at a P/E of 53, which is more than 3-times that of Auto Zone and Advance Auto Parts.

Average estimates predicts revenue of $532.8 million, which would represents growth of just 1.6%. This projection seems conservative to me, though, especially since the company is coming off a strong quarter where revenue grew better than 5%.

While it's true there are still concerns regarding the impact of payroll tax increases and the slow payments in income tax refunds, which has cause consumers to postpone vehicle repairs, I don't believe that this reason can be used indefinitely.

Besides, although Advance Auto Parts and Auto Zone just posted unassuming relative results, their sales figures, which includes revenue growth of 3% and 4.5%, respectively, suggests a better-than-expected start to the spring selling season.

Accordingly, I would expect Pep Boys to post sales results that beat Street estimates by at least 1.5% ($540.8 million). On the bottom line, however, the Street is looking for 9 cents per share in earnings, or year-over-year growth of 125%. That number seems aggressive, especially since Pep Boys missed EPS estimates last year by 6 cents.

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