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CONSUMER CYCLICALS: LKQ (LKQ Baa3/BBB-/BBB-[P]): Investor Day

CONSUMER CYCLICALS

Positive signals on financial policy here, albeit with slightly disappointing outlook

  • With a new CEO in place, LKQ has committed to maintain or improve its IG rating and maintain debt/EBITDA below 2x; 2.3x currently.
  • For 2025-27 targeting 1-2% organic revenue growth. While an improvement from a small expected contraction this year that looks underwhelming vs 2.5% expected for 2025, although estimates are thin further out. 10-20bp annual EBITDA margin improvement also looks below consensus.
  • $2.4-3.2bn cumulative FCF target aligns with consensus.
  • Sees 2025-27 OCF $3.4-4.6bn, 35% to debt repayment ie $1.2-1.6bn. That would put leverage below the 2x target for 2025 and just above 1x by 2027. That would put credit on a positive trajectory if M&A discipline is maintained. While the company has a long track record on that front, guidance points to 10% of OCF directed to tuck in M&A with no large platforms expected to be acquired.
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