Advance Auto Parts' overhaul plans will be "messy" - Bank of America Securities

Investing.com -- A sweeping strategic overhaul laid out by Advance Auto Parts (NYSE:AAP) this week is "going to be messy," according to analysts at Bank of America Securities.

The auto parts seller's Chief Executive Officer Shane O'Kelly, who took over at the helm of the firm in September, unveiled plans on Wednesday to launch a new cost reduction program aimed at generating at least $150 million in savings on an annualized basis and sell off both its Worldpac distribution unit and its Canadian business.

“We are taking decisive actions to position Advance for long-term success and create meaningful value for our shareholders," O'Kelly said in a statement.

The announcement comes as North Carolina-headquartered Advance Auto Parts' distribution and production have been hit hard by elevated raw material costs and supply chain constraints this year. In its most recent quarter, the group slipped to an unexpected loss and cut its annual financial outlook.

But in a note downgrading their rating of the company to "underperform" from "neutral," the Bank of America Securities analysts argued that the transition will likely mean that free cash flow will be "under pressure" for at least the next twelve months.

"[There is] a lot of wood to chop before [the] stock looks attractive," they said, adding that the possible divestiture of Worldpac and the Canadian division is expected "to be initially dilutive to net income due to dissynergies and tax expenses."