LKQ Falls Most Since 2011 After Short Seller Issues Report

Jan 15, 2014 5:50 pm ET

(Closes stock price in second paragraph.)

Jan. 15 (Bloomberg) -- LKQ Corp. fell the most in more than two years after short-seller Prescience Point Research Group said the auto-parts repair service has exaggerated revenue growth.

LKQ slid 8.8 percent to $29.46 at 4 p.m. in New York, the biggest decline since August 2011. About 23 million shares changed hands, 16 times the one-year average. Prescience Point said its share-price target for the company is between $10 and $15.

Prescience Point, which says on its website that it’s co- founded by a former investment banker at Barclays Plc and Credit Suisse Group AG, said profits at LKQ have been amplified by acquisitions. The company also faces declining demand for its auto parts, the report said. Joseph Boutross, a spokesman for Chicago-based LKQ, didn’t respond to two phone calls or an e- mail seeking comment.

Research firms, such as Prescience Point, study a company’s financial statements and try to profit by borrowing shares and selling them with the aim of buying the stock back at a lower price and pocketing the difference. Prescience Point said in the report that it will make money from a retreat in LKQ shares.

About 0.3 percent of LKQ’s outstanding shares have been sold short, according to data compiled by Markit, a London-based research firm. The average short interest for a company in the Russell 1000 Index is 2.7 percent.

Strong Revenue

Revenue growth for parts and services was “strong” during the third quarter, Robert Wagman, chief executive officer of LKQ, said in the company’s third-quarter earnings statement. In August, the company said it bought five paint distributors in the U.K. as it expands globally.

Investors should buy LKQ shares after the decline today, Stifel Nicolaus said in a research report. The company’s management has “best in class” practices and growth is above average from acquisitions, James Albertine wrote in note.

Prescience Point was founded in 2012 by Eiad Asbahi, a former analyst at Sand Spring Capital, and Ben Axler, a fund manager at Spruce Point Capital Management who previously worked at Credit Suisse and Barclays, according to the company’s website. The firm focuses on uncovering companies involved in “fraudulent or misleading” business practices, it says.

--With assistance from Ye Xie in New York. Editors: Lynn Thomasson, Jeremy Herron