Investment Thesis
LKQ faces deteriorating fundamentals with declining revenue (-1.2% YoY) and critically negative operating cash flow (-$56M) despite positive net income, suggesting earnings quality concerns. Thin net margins (2.3%) and unsustainable cash burn (-$96M FCF) create significant financial stress that current leverage ratios cannot offset indefinitely.
Strengths
- Reasonable gross margin of 38.4% indicates retained pricing power in wholesale automotive segment
- Conservative leverage with debt/equity of 0.24x provides some financial flexibility
- Substantial asset base of $15.1B demonstrates established market position and diversification
Risks
- Negative operating cash flow (-$56M) and negative free cash flow (-$96M) indicate unsustainable operations despite positive accounting profits
- Revenue contraction combined with EPS declining 10.3% signals deteriorating operational performance and efficiency
- Weak quick ratio (0.60x) with only $335M cash against $1.6B debt exposes liquidity risk if cash burn continues
- Razor-thin net margin (2.3%) leaves minimal buffer for operational disruptions or economic downturns
Key Metrics to Watch
- Operating cash flow trend - must turn positive to validate earnings quality
- Free cash flow sustainability - current -2.8% FCF margin is untenable
- Revenue stabilization - declining topline compounds all profitability pressures
- Cash balance depletion rate - critical to monitor against debt obligations
Financial Metrics
Revenue
3.5B
Net Income
79.0M
EPS (Diluted)
$2.35
Free Cash Flow
-96.0M
Total Assets
15.1B
Cash
335.0M
Profitability Ratios
Gross Margin
38.4%
Operating Margin
6.3%
Net Margin
2.3%
ROE
1.2%
ROA
0.5%
FCF Margin
-2.8%
Balance Sheet & Liquidity
Current Ratio
1.54x
Quick Ratio
0.60x
Debt/Equity
0.24x
Debt/Assets
0.0%
Interest Coverage
N/A
Long-term Debt
1.6B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T18:09:57.455125 |
Data as of: 2026-03-31 |
Powered by Claude AI