Two roads diverged for L.A.-area auto-part makers last week, as one saw its fortunes fall while another gained.
The stock of U.S. Auto Parts Network Inc. in Carson fell 7.5 percent after the company was downgraded by an analyst. On the high road, Motorcar Parts of America Inc. in Torrance was the biggest gainer on the LABJ Stock Index after the company signed a new line of credit. Motorcar Parts gained 14 percent to close at $4.91 on Aug. 29. (See page 26.)
In a filing with the Securities and Exchange Commission, Motorcar Parts, which operates as a wholesaler to about 12,500 stores in the United States, announced its Fenco subsidiary had signed a $20 million trade line of credit with Wanxiang, a Chinese parts manufacturer.
Gary Maier, spokesman for Motorcar Parts, said the deal is part of larger project to turn around Fenco, which the company acquired in May 2011. Prior to the acquisition, Motorcar sold “under the hood” electrical replacement parts such as alternators and starters, while Fenco makes “under the car” parts such a brakes and drive shafts. The strategy is to merge the two product lines.
But integration has proved expensive and the company has repeatedly sought money for Fenco, including a $15 million private placement in April and a $95 million credit facility announced in January.
Maier noted that the latest deal with Wanxiang represents both a capital infusion and a commitment from one of Motorcar’s biggest parts suppliers.
“It seems to have been favorably received by investors,” he said.
Jimmy Baker, an analyst at B. Riley & Co. in Los Angeles, called the deal a small net positive.
“The company now has the necessary funding for the turnaround; however that comes at a cost, and a rather high cost,” he said. Wanxiang will get 12 percent interest on the loan plus stock warrants.
“Motorcar Parts has again been forced to concede some of the upside potential from its Fenco acquisition in exchange for much-needed liquidity,” Baker wrote in a note to investors on Aug. 29. He rated Motorcar “neutral” with a target price of $5.25.
Meanwhile, U.S. Auto Parts, an online seller, was downgraded by analyst Gary Prestopino at Barrington Research in Chicago on Aug. 22.
In a note to investors explaining why his rating went to “under perform” from “market perform,” Prestopino said U.S. Auto Parts is losing traffic as other auto e-commerce sites continue to grow.
In a conference call on Aug. 7, management disclosed that it plans to reduce the number of its sites to concentrate on marketing those that remain. Management anticipates a 13 percent decline in revenue during the next 24 months but improvement in the company’s profits.
“Given this new strategy, we believe any return to profitable growth for the company is pushed out at least two years from now,” Prestopino stated in his note to investors.
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