Dorman Products (NASDAQ:DORM) is one of those company’s fundamental to an industry that you often hear nothing about. The company is a manufacturer and distributor of after-market automobile parts for both repair professionals and retail outlets making it one of the better-positioned businesses within its industry. There is no doubt that a major boom is underway in the after-market car industry. Used car sales are up double-digits at both physical and digital outlets. That boom, along with the shift toward keeping cars longer, has sales at after-market supply shops like AutoZone (NYSE:AZO) and O’Reilly Automotive (NASDAQ:ORLY)) surging as well. In that light, it should have been expected that the supplier of parts would see its revenue surge as well… only it wasn’t. At least not by the analysts.
Dorman Crashes Through Consensus At High Speed
There is one small negative in the Dorman report and we feel it important to get it out of the way right from the start. The company’s $301.2 million in revenue is up only slightly from the prior quarter. That’s it. The Q4 revenue is basically flat from that last quarter. Other than that one bit of tepid news everything else about the report is incredibly bullish for share prices. Not only did YOY growth come in at 25.7% but it also accelerated from the prior quarter’s +18.5% and beat the consensus by 1170 basis points. It was also a company record and capped off a great year in which Dorman brought in more than $1 billion for the first time ever.
Moving down the report, the news only gets better. The company saw a significant margin improvement that is due to internal efficiencies, cost-saving initiatives, and a reduction in provisions for out-of-stock and out-of-production inventory. Both GAAP and adjusted gross margin came in at 37%, up from 32.7% and 32.8%, while operating margin improved as well. SG&A expenses accounted for most of the gains due to cost-leveraging of sales growth and are expected to stick. On the bottom line, both GAAP and adjusted earnings grew triple-digits with both beating the consensus as well. The GAAP earnings grew 106% YOY and beat by $0.15 while adjusted earnings of $1.19 beat by $0.27.
The company opted not to give any guidance but did leave us with a positive vibe. The company CEO says they feel they are in a good position to deliver growth in 2021 and we concur. Although the growth of sales of used cars may slow due to rising prices and rates they are not expected to retreat anytime soon. That will support an already robust market for after-market parts and equipment, and fuel growth as well.
Dorman doesn’t pay a dividend at this time although the balance sheet could certainly support one. The company has almost no debt and its ample cash-flow is relatively unimpeded. The company does repurchase shares, however, and bought nearly 221,000 over the past quarter. The purchases were worth about $20.6 million to shareholders, there is $207.1 million left under the current repurchase authorization.
Don’t Buy Into The Analysts Ratings
There are some analysts ratings on Dorman Products but investors should not read much into them. The most recent is nearly a year old and does not reflect the rebound or the outlook for the stock. What investors may want to buy into, on the other hand, is the strong bounce from the support that was caused by the earnings report. This company is obviously in a great position for the post-pandemic environment and that is seen in the price action. The trend is up but there is resistance at the recently set and tested all-time highs. Resistance is near the $100 to $102.50 range and may keep prices in check bug we don't think so. The indicators are consistent with an uptrend and rolling into a buy signal so we expect to see resistance tested vigorously and then exceeded in the next several weeks.
