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January 16, 2014
10:09 EDTLKQLKQ falls for second day after release of highly critical report
Shares of auto parts maker LKQ Corp. (LKQ) are retreating for a second straight day, after a short selling blog initiated coverage of the stock with a Strong Sell rating yesterday and harshly criticized the company. Today LKQ disputed the report, and a number of research firms defended the shares. WHAT'S NEW: Short selling blog Prescience Point's report alleged that LQK has not generated any free cash flow excluding its acquisitions and is becoming increasingly dependent on investments from outside entities to maintain "the illusion" of profits. Moreover, the company's gross margins are consistently declining, and it is facing problems with its new European business, charged the blog, which placed a $10-$15 price target on the shares. In a statement this morning, LKQ said it disagreed with many of Prescience's statements and conclusions, and alleged that the report contains many inaccuracies. ANALYST REACTION: William Blair analyst Nate Brochmann was also skeptical about the report, calling its points "largely baseless and fairly sensational" in a note to investors earlier today. Brochmann continues to believe that LKQ is a good company with a proven business model and significant potential growth catalysts. He believes that the weakness in the stock has created an attractive buying opportunity, and kept an Outperform rating on the shares. Similarly, research firm Robert W. Baird in a note to investors earlier today stated that investors' reaction to the report yesterday was overdone. The firm believes that the company's management has integrity, while many of Prescience's assertions "were false and misleading." It kept a $38 price target and Outperform rating on the stock. PRICE ACTION: In early trading, LKQ fell 62c, or 2%, to $28.80. Yesterday the stock dropped nearly $3.
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