Shares of autoparts distributor LKQ (NASDAQ:LKQ) fell more than 11% on Thursday, performing worse than the S&P 500 on a miserable day for the markets. The company has exposure to many parts of the globe hit hardest by the COVID-19 coronavirus, and investors are worried the outbreak will have a lasting impact on its results.
As the novel coronavirus spreads globally, it's having a profound impact on global industrial production and supply chains. It could also cause a recession, which could eat into new and used car sales, and automotive stocks have been pummeled as a result. It's also weighing on suppliers to the sector.
LKQ has major operations in the U.S., Canada, and throughout Europe, and investor worries about its exposure to Italy, in particular, have been weighing on the shares lately. With Thursday's drop, shares of LKQ are now off 33% for the year, brushing up against a new 52-week low.
Investors hate uncertainty and are fleeing from companies like LKQ because no one knows how bad the outbreak will get or how bad the impact will be on business. But earlier this week, Stephens analyst Daniel Imbro tried to quantify the company's Italy exposure, saying that, at most, he expects it to impact earnings by about 3%. Given LKQ's strong free cash flow, he's not worried.
LKQ is a solid company caught up in a difficult macroeconomic environment. No one can say for sure what the shares will do over the next few days or months, but over time, the company is well set up to reward patient investors.