Here's Why You Should Offload Standard Motor Stock From Your Portfolio

Standard Motor Products, Inc. SMP, one of the leading manufacturers, distributors and marketers of premium automotive replacement parts for engine management and temperature control systems, faces structural pressure from the declining wire set business, which weighed on Vehicle Control sales and could limit growth. Tariff uncertainty, delayed pass-throughs and potential refund sharing add pricing and profitability risks. Margin compression, higher distribution costs, Middle East-related supply disruptions, debt and rising interest and depreciation expenses could further constrain earnings growth.

Let’s dig deeper and see why you should consider offloading this Zacks Rank #4 (Sell) stock from your portfolio.

Vehicle Control Challenges, Geopolitical Uncertainty Ail SMP

The biggest structural challenge within SMP's Vehicle Control segment remains the ongoing decline of its wire set business. The category is in secular decline and is falling at a mid-single-digit annual rate, leading customers to reduce inventory and slow purchases. This weakness was significant enough to drive a 1.6% decline in Vehicle Control sales during the second quarter. While the broader segment was still up 4.7% year to date, the declining wire set category could remain a persistent drag on growth and make it harder for SMP to consistently expand its largest legacy aftermarket businesses.

SMP continues to operate in a changing tariff environment. The company expects only a nominal reduction in overall tariff exposure. Although the company generally passes tariffs through to customers dollar for dollar, there is a timing lag of roughly 90 to 120 days. SMP also expects to share previously received tariff refunds with customers, although the final mechanics remain under discussion. This creates uncertainty around pricing, revenue and near-term profitability. In addition, the company's outlook excludes the effects of further tariff changes, leaving results exposed to additional policy developments. 

SMP's outlook incorporates continued margin compression from tariffs passed through at cost and elevated distribution expenses, while inflation already reduced gross margins in Engineered Solutions. Potential cost inflation and supply-chain disruption related to the conflict in the Middle East are risks not included in its outlook. Although leverage is improving, SMP still had $510.2 million of net debt at quarter-end and expects approximately $30 million of interest expense for 2026. Depreciation and amortization are also expected to rise to $45-$50 million due to distribution-center investments. These factors could constrain earnings growth if operating conditions weaken or costs increase further.

Price Performance, Valuation and Estimates  

SMP has outperformed the Zacks Automotive - Replacement Parts industry in the last six months. Its shares have lost 6.9% compared to the industry’s decline of 7.7%. 

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From a valuation perspective, SMP appears undervalued. Going by its price/sales ratio, the company is trading at a forward sales multiple of 0.43, lower than the industry’s 0.66. 

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The Zacks Consensus Estimate for SMP’s 2026 EPS has declined 17 cents in the past 30 days.

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Stocks to Consider

Some better-ranked stocks in the auto space are China Yuchai International Limited CYD and Garrett Motion Inc. GTX, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for CYD’s 2026 sales and earnings implies year-over-year growth of 58.6% and 68.6%, respectively. 

The Zacks Consensus Estimate for GTX’s 2026 sales and earnings implies year-over-year growth of 7.2% and 25.7%, respectively. The EPS estimate for 2026 and 2027 has improved 10 cents each over the past 30 days.

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This article originally published on Zacks Investment Research (zacks.com).

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