FB calls auto parts maker Motorcar Parts of America’s quarter weak

Freedom Broker analysts believe that weak results at Motorcar Parts of America (MPAA) in the first quarter of fiscal 2027 increase the risks of meeting guidance, but do not yet change the company’s investment thesis. The experts maintain a “Buy” rating while cutting the 12-month target price from $18 to $16. At the current price of $11.7, the upside potential is 36.75%.

Motorcar Parts of America — what the company does

Motorcar Parts of America is a U.S. manufacturer of automotive components for the North American aftermarket automotive service market. The company produces, among other things, brake systems and components for passenger and heavy-duty vehicles, supplying products to major retail chains and distributors.

The first quarter came in weaker than expected

A weak first quarter does not change the investment thesis, but noticeably increases execution risks, Freedom Broker analysts note. In their view, MPAA remains a profit recovery story supported by non-discretionary demand for auto parts, expansion of the brake segment, new contracts, and improving manufacturing efficiency.

MPAA’s revenue in the first quarter of fiscal 2027 fell to $168.0 million from $188.4 million a year earlier. The figure was about 10% below Freedom Broker’s estimate of $186 million. The main factors were customers pushing out order timing, the sell-off of inventory from a bankrupt competitor, and delivery delays amid the relocation of heavy electric equipment manufacturing operations from Canada to Mexico.

Gross profit declined to $27.2 million from $33.9 million a year earlier, and gross margin narrowed to 16.2% from 18.0%. Excluding non-cash and one-time items, margin was 20.2%. Additional pressure came from changes in the USD/MXN exchange rate — about $3.5 million, or roughly 200 bps.

Profit remains under pressure

Adjusted EBITDA was about $13.5 million versus $22 million in the analysts’ forecast. Adjusted net loss reached about $6.5 million, or $0.34 per share, while Freedom Broker had expected EPS of $0.29.

Under GAAP, MPAA reported a net loss of $13.4 million, or $0.71 per share, versus net income of $3.0 million, or $0.15 per diluted share, a year earlier. The result was affected by non-cash expenses of $4.6 million and one-time items totaling $2.3 million. Interest expense remains a significant headwind to financial results, although year over year it decreased to $12.0 million from $12.8 million.

Management maintains full-year guidance

Despite a weak first quarter, MPAA reaffirmed its guidance for fiscal 2027: revenue is expected at $780–800 million, adjusted operating profit at $86–91 million, and EBITDA at $95–100 million.

This implies that the bulk of growth must come in the second half of the fiscal year. Freedom Broker believes the task remains achievable: revenue growth in Q2–Q4 versus the comparable period last year should be about 2–5%. However, the margin of safety for meeting guidance remains limited.

New contracts as key drivers

Management expects shipment growth under already awarded contracts and higher utilization of production capacity. Additional support could come from the brake segment, where higher utilization should help improve margins.

Analysts also cite the relaunch of the Centric Parts automotive components brand as another potential source of growth. MPAA expects to add more than $100 million in annual revenue by the end of fiscal 2027, which should lift annualized sales at the current run rate to above $900 million. 

What will drive the stock

According to Freedom Broker analysts, in the coming quarters MPAA needs to confirm that new contracts are indeed converting into shipments, volume growth, and improved cash flow.

Key drivers remain the normalization of a competitor’s inventory, growth in the brake business, the Centric Parts relaunch, completion of the move of manufacturing to Mexico, and realizing more than $100 million in additional annual revenue. The main risks are related to further order delays, USD/MXN currency moves, high inventory levels, financing costs, and a slower conversion of earnings into cash flow.

Analysts’ previous recommendation

In June, Freedom Broker reaffirmed its “Buy” rating on MPAA and raised the target price to $18. At that time, analysts expected a profit recovery in fiscal 2027: the revenue forecast was $810 million, adjusted EBITDA $104 million, and EPS $1.71. The experts pointed to improving customer orders, rising gross margin, and strengthening of the company’s position in the brake systems segment.

Not an individual investment recommendation.