Advance Auto Parts
Thesis
We recommend buying 7.375% Senior Unsecured Notes due 2033, which currently trade at 100.008 and yield 7.37%. With $975 million outstanding and Ba3 / BB ratings, the notes offer attractive spread compression potential as fundamentals stabilize. Our base-case target price of 105.634 by year-end 2026 implies a 6.25% yield and delivers a compelling 13.3% IRR and 1.13x MOIC.
Did it work?
The thesis called for fundamentals to stabilize and spreads to compress, driving the notes from ~100 to a 105.634 target by year-end 2026. Instead, the bonds have collapsed roughly 57% to the low-40s, a price level that signals severe credit deterioration or distress — the direct opposite of the stabilization premise. A drawdown of this magnitude on a Ba3/BB bond decisively invalidates the spread-compression thesis regardless of remaining time to the stated horizon, and coupon income cannot offset such a loss.