Dorman - Jefferies

COMPANY NOTE
Initiating Coverage
October 20, 2015
USA | Industrials | Autos/Automotive Aftermarket
HOLD
Price target $56.00
Price $51.04
Initiating with a Hold - Expect Growth but

Up Against a High Hurdle
Key Takeaway
We believe DORM boasts a premier aftermarket product pipeline. However,
robust trailing 5 yr growth, 11% and 14% sales and EPS CAGR, and industry
leading margins present a high performance hurdle as DORM looks to build
on record new products in '14 (3,740). As current valuation (17.7x our '16 EPS
estimate) outpaces historic levels and peers (17.0x 5 yr forward mean P/E vs.
peers at 13.3x), we would prefer a better entry point to establish new positions.
Leveraging a unique business model. DORM re-engineers formerly dealer only
parts for introduction into the auto aftermarket. With tailwinds from industrywide parts
proliferation and increasing complexity, DORM has leveraged a significant network of
professional installers for idea generation and now offers more than 140,000 SKUs and
57,000 unique parts across 150+ categories. Given robust historical sales growth (10.5%
5 yr CAGR), we expect a modest deceleration in expansion rate as both the law of large
numbers and some disruption associated with recent SAP roll-out limit growth in 15.
Increasing vehicle technology could make our outlook too conservative. Despite
facing a difficult comp hurdle, we believe current rapid technology innovation in the
auto space favors DORM's engineering focused product pipeline. We expect increasing
penetration of sensors and coded products will favor parts developers such as DORM that
can re-engineer and improve OE products for aftermarket applications without infringing
upon intellectual property rights.
Financial Summary
Book Value (MM):
Book Value/Share:
Net Debt (MM):
Cash & ST Invest. (MM):
$504.8
$14.17
($67.2)
$67.2
Market Data
52 Week Range:
$53.75 - $40.05
Total Entprs. Value (MM):
$1,749.8
Market Cap. (MM):
$1,817.0
Shares Out. (MM):
35.6
Float (MM):
30.9
Avg. Daily Vol.:
243,110
Other growth runways abound but remain in very early stages. Both heavy duty
and hybrid markets (<2% of revenue combined) have been relatively slow to develop. Yet
we believe segment sales could ultimately accelerate meaningfully given the heavy duty
market is highly consolidated and fleet orders can be impactful while DORM benefits as
first-to-market positioning in the aftermarket hybrid battery category. Similarly, with $58.1M
available under the current buyback program, we believe DORM could also drive improved
earnings growth with incremental repurchases (forecast $20M in 2H buyback).
Valuation/Risks
Our $56 price target is based on 18.7x our FY'16 EPS estimate of $2.99, a 9.7% premium
to DORM's 5 year historic forward P/E multiple of 17.0x, which we view as reasonable
given DORM's leading product pipeline and favorable industry fundamentals. Risks to share
appreciation include competitive, economic, consolidation and vendor specific risks.
Bret Jordan, CFA *

Equity Analyst
(617) 342-7926 bjordan1@jefferies.com
David L. Kelley *
Equity Analyst
(617) 342-7901 dkelley1@jefferies.com
* Jefferies LLC
USD
EBIT (MM)
Prev.
2013A
Prev.
2014A
Prev.
2015E
Prev.
2016E
--
127.9
--
140.7
--
145.6
--
166.7
EV/EBIT
Rev. (MM)
13.7x
--
EV/Rev
Cons. EPS
664.5
12.4x
--
2.6x
751.5
12.0x
--
2.3x
773.6
10.5x
--
831.6
2.3x
Price Performance
55
2.1x
--
--
--
--
--
2.66
--
3.04
Mar
--
0.52
--
0.64
--
0.60A
--
0.70
Jun
--
0.53
--
0.64
--
0.65A
--
0.76
Sep
--
0.62
--
0.68
--
0.72
--
0.82
Dec
--
0.56
--
0.52
--
0.62
--
0.70
FY Dec
--
2.24
--
2.49
--
2.59
--
2.99
50
EPS
FY P/E
22.8x
20.5x
19.7x
17.1x
45
40
OCT-14
FEB-15
JUN-15
OCT-15
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflict
of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 17 to 20 of this report.
EQUITY RESEARCH AMERICAS
Dorman Products (DORM)
DORM
Initiating Coverage
Dorman Products, Inc.
October 20, 2015
Hold: $56 Price Target
Target Investment Thesis
Upside Scenario
Downside Scenario
Current pace of new product development DORM returns to double digit sales growth Organic growth decelerates as DORM
continues although industry leading
driven by outsized new product intros
effectively picks the low hanging fruit in
earnings expansion (14.1% 5 yr CAGR)
the market
Heavy duty penetration ramps to +5% of
likely decelerates modestly
mix as a consolidated customer base
Margin expansion stalls as DORM spends
Expect new market expansion (heavy
quickly adopts DORMs products
more heavily for growth (offsetting SAP
duty/hybrids) to continue at a gradual
benefits) and higher margin SKU
Robust margin expansion (+150 bps EBIT
pace (<2% of rev combined)
penetration nears peak levels
margin)
EBIT margin poised for expansion as SAP
spending abates (+120 bps yr/yr in 16)
A shift in strategy as DORM begins to

acquire aftermarket peers
Other growth alternatives have limited

impact (HD penetration, acquisitions)
2016 EPS: $2.99; Target Multiple: 18.7x;

Target Price $56
2016 EPS: $3.65; Target Multiple: 19.0x;

Target Price: $70
2016 EPS: $2.75; Target Multiple: 15.3x

Target Price: $42
Long Term Analysis

1 Year Forward P/E
Long Term Financial Model Drivers

LT Earnings CAGR
11%
Organic Revenue Growth

Operating Margin Expansion
Other Considerations
6-9%
90 - 130 bps
The automotive aftermarket industry

appears positioned for a solid year given
improving miles driven and the current
record old age of the vehicle fleet (mean
of roughly 12). Accordingly, parts failure
rates could accelerate driving improved
demand across several product categories.
Source: CapIQ, Jefferies estimates
Peer Group
Group P/Es
Catalysts
DORM delivers consecutive quarters of
double digit sales growth effectively
debunking current growth trajectory
concerns
Announced acquisitions; not baked into
estimates
Earnings Growth vs P/E
Recommendation / Price Target

Ticker
Rec.
PT
DORM
Hold
$56
CTB
Hold
$41
SMP
Buy
$43
SNA
Hold
$175
Company Description
Dorman Products is a supplier of replacement parts and fasteners for both light vehicle and
heavy duty trucks in the automotive aftermarket. DORM designs, engineers and distributes
roughly 140,000 SKUs. DORM is the primary aftermarket supplier of OE dealer exclusive
parts which were traditionally available to consumers only from OE manufacturers.
Roughly 85% of products sold are name brand.
page 2 of 20
Please see important disclosure information on pages 17 - 20 of this report.
Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com
THE LONG VIEW
Scenarios
DORM
Initiating Coverage
October 20, 2015
Executive Summary
Industry leading product development creates high hurdle. We believe DORM is
the leading aftermarket parts innovator, known for re-engineering and introducing more
formerly dealer only parts into the aftermarket than any other parts developer. With
tailwinds from industrywide parts proliferation and increasing complexity, DORM has
leveraged a significant network of professional installers for idea generation and now
offers more than 140,000 SKUs and 57,000 unique parts across 150+ product categories.
Aggressive focus on new product development has contributed to double-digit revenue
growth with a 10.5% year CAGR well ahead of major customers (AAP, AZO, GPC, and
ORLY are roughly 65% of sales) mid-single digit comp expansion in the period. Ultimately,
rapid revenue growth has fueled robust earnings expansion over the same time period
(14.1% 5 yr CAGR). While we know of no industry peer with comparable historic sales
and earnings growth, we expect a modest deceleration in expansion rates as both the
law of large numbers and some disruption associated with recent SAP roll-out limit
growth in 15. Notably, following a record year of roughly 3,740 new parts introduced in
2014, we estimate parts introductions are up roughly 2% YTD (through Q2) while YTD
sales are also roughly 2.0% higher yr/yr against difficult comps (+20% 1H14 sales
growth) and inventory reduction related to customer consolidation. Although we believe
we have seen the trough in sales expansion and expect sales and margin recovery from
1H levels as SAP spending abates, we expect (barring acquisitions) that 5-year forward
growth likely trails the high bar set since 2010.
New technologies could make our more cautious growth outlook too
conservative. As a leader in product development and engineering we believe current
technology trends provide DORM with a strategic advantage. Notably, we expect
increasing penetration of sensors and coded products will favor parts developers such as
DORM that can re-engineer and improve OE products for aftermarket applications
without infringing upon intellectual property rights. Additionally, we expect that
technology trends will continue to drive higher average parts pricing, allowing greater
top line impact from new SKU introductions.
New markets provide expansion potential but ramp-up has been gradual.
Primarily a supplier to the traditional light vehicle aftermarket, DORM also sells into heavy
duty and hybrid vehicle channels. Both markets have been relatively slow to develop,
however, as heavy duty presently accounts for roughly 1% of revenue (<1% for electric).
While we believe segment sales could ultimately accelerate meaningfully given the heavy
duty market is highly consolidated and fleet orders can be impactful, modestly delayed
product rollouts have limited penetration to roughly 550 SKUs. The introduction of
aftermarket hybrid batteries in 2013 positions DORM for growth as the hybrid vehicle
market enters a battery replacement cycle, although penetration of HEVs across the
industry remains limited (roughly 1.2%).
A shifting growth strategy could be on the horizon. Historically cautious on the
acquisition front (one $3.7M acquisition in last 5 years hybrid battery remanufacturer),
we believe DORM could become more active in M&A to maintain its industry leading
growth rate. With a debt free balance sheet and ample free cash flow (+2% FCF yield), we
believe DORM has the ability to fund meaningful growth from bolt-on additions. We also
believe a macro trend of industry consolidation will accelerate as increased technology
content penalizes less sophisticated parts manufacturers and favors well-capitalized
engineering centric developers such as DORM. Given recently (9/24/15) announced
management changes, most notably the transition of Steve Berman to Executive
Chairman and Matt Barton to CEO (succeeding Berman), we believe DORM could be
positioning itself for a more acquisition oriented growth strategy.
page 3 of 20
DORM
Initiating Coverage
October 20, 2015
Valuation
DORM has historically traded at a premium to peers given its above peer historical sales
and earnings growth rate and unique asset light engineering focused model. Our $56
price target is based on 18.7x our FY16 EPS estimate of $2.99, a 9.7% premium to
DORMs five-year historic forward P/E multiple (17.0x), and comparing favorably to
DORMs mean industry and S&P500 premiums of 25.0% and 14.7%, respectively. While
we believe DORM remains well positioned vis a vis secular trends we initiate coverage
with a Hold rating as we expect some potential pressure on valuation if street forward
growth expectations need to downshift to reflect the challenge of maintaining double
digit top line expansion in a business that has already grown substantially. Given our
expectations of increasing acquisition activity we remain favorably biased to the shares
and would become more constructive with improving growth visibility.
Risks
Competitive risk. DORM competes with both OE parts manufacturers and aftermarket
suppliers for vehicle service and maintenance share. A step back in product innovation or
the loss of certain customers (to competitors or direct source) would negatively impact
results.
Economic risk. Any adverse change in economic conditions could lead to lower
demand or increasing operational costs. Similarly, deteriorating conditions could impair
the ability of customers to pay for products purchased.
Consolidation risk. Customer consolidation continues to impact pricing negotiations
with Advance Auto Parts acquisition of General Parts International in January 14 serving
as a recent example. Customers may require DORM to provide extended payment terms
and returns of slow moving product.
Vendor risk. DORM purchases a majority of products sold from foreign vendors. Any
loss of a primary existing vendor could disrupt operations and drive higher prices.
page 4 of 20
DORM
Initiating Coverage
October 20, 2015
Investment Considerations
We believe DORM is the industry leading aftermarket parts innovator with a history of
generating high growth and returns on capital via product re-engineering and a focus on
introducing formerly unavailable parts to the market. However, an expected modest
slowing in the pace of core business expansion and current premium valuation versus
historic mean levels warrants a more conservative approach to the shares at present. We
initiate with a Hold rating but believe DORM remains one of the strategically best
positioned parts developers in the aftermarket.
Double digit growth in a single digit world

Having posted industry leading revenue growth and operating margins since adopting a
product re-engineering focus roughly ten years ago, we believe maintaining similar pace
of expansion in the near term could prove more challenging. Notably, the confluence of
the law of large numbers (DORMs top line is 154% larger than it was in 2006) and
generally improving vehicle quality (DORM focuses on identifying high-failure parts and
engineering a solution) makes sustained double digit expansion rates more challenging to
achieve. Given our expectation that industry demand for failure parts grows at a 3-5%
rate and DORM continues to out-execute in product development we believe top line
expansion (barring acquisitions) should fluctuate between 7 and 11% over the next two
to three years, potentially below managements guidance of low double digit growth
Leveraging a unique model
DORM designs and engineers aftermarket parts across more than 150 categories. DORM
introduces an extensive parts lineup each year (roughly 3,740 in 2014) with new
products added to the catalog monthly. Parts are released as either new-to-theaftermarket (formerly dealer-only parts) or line extensions with a roughly 35/65%
historical mix. Roughly 75% of products are imported from contract manufacturers with
China being the leading source country. DORMs asset light outsourced production
model has allowed the company flexibility to participate in diverse product categories
without the need to leverage particular manufacturing assets a key differentiator in our
mind. FY14 revenue by category and by channel is provided in Chart 1 & 2.
Chart 1: Sales by Category
Chart 2: Sales by Channel

6%
8%
29%
45%
26%
49%
Traditional (NAPA, Federated, etc.)
37%
Auto Body
Powertrain
Chassis
Retail (AAP, AZO, ORLY, PBY)
Hardware
Other (Walmart, Home Depot)
Source: Jefferies, company data
Typically generating roughly 20-25% of revenue from products introduced in the trailing
24 months, DORM has delivered robust sales growth (14% five year CAGR) as annual
product introductions have more than doubled since 2010 (roughly 3,740 in 14 up from
page 5 of 20
DORM
Initiating Coverage
October 20, 2015
1,850) as seen in Chart 3. In DORMs all important new-to-the-aftermarket segment,
products typically associated with premium margins and high sell-through, introductions
have expanded at a roughly 14.0% CAGR (five yr). Notably, DORM utilizes a broad
network of professional installers to identify failure prone parts in a grass roots system of
idea generation for product development. As installers give feedback on high failure OE
parts or potential engineering improvements DORM then engineers a more reliable part
utilizing a staff of more than 350 engineers. Notably, as this feedback loop has gained
traction DORMs product development staffing has increased significantly over the last
five years, from 158 in 2010 to 361 as of FY14 end, ultimately driving incremental
products into the parts catalog. We note that as a supplier DORM receives particularly
strong reviews from the primary retail channel (AAP, AZO, ORLY, NAPA) as the
introduction of new to the aftermarket SKUs drives retail comps and the solution
centric product line is typically well received by mechanics who in many cases identified
the products for re-engineering.
Chart 3: Annual New Product Introductions
Chart 4: Annual Engineering Staff
5 Yr CAGR of 15.1%
4,000
400
3,500
350
3,000
300
2,500
2587
1,500
1,000
500
200
1911
1192
657
680
1065
804
227
40%
254
35%
30%
25%
158
20%
150
1451
873
1266
648
15%
100
10%
50
5%
0
2010
2011
2012
New-to-the-Aftermarket
2013
2014
2015 YTD
Line Extensions
Source: Jefferies estimates, company data
50%
45%
294
250
2476
2,000
361
0%
2010
2011
2012
2013
Engineering Staff
2014
Yr/Yr
Hurdles get higher as past successes elevate the bar for growth targets
While DORMs model is unique to the industry (and has proven to be the fastest growing
and most profitable), we believe some longer-term slowing of the historic double-digit
growth pace is likely as R&D staff are stretched to expand off of a dramatically increased
base. Notably, since 2005, DORMs sales growth has significantly outpaced the
automotive aftermarket (11.7% vs. 2.8% industry growth Chart 5).
In the shorter term, while YTD revenue growth (as of Q2) has decelerated to 2.0% yr/yr
(Chart 5) due to difficult comps (approached 20% y/y growth in 1H14), SAP disruption
and shipping delays experienced as a major customer integrates a meaningful acquisition,
we expect recovery in 2H15 as comps ease and SAP issues abate.
page 6 of 20
DORM
Initiating Coverage
October 20, 2015
Chart 5: Dorm Revenue Growth vs. Light Vehicle Aftermarket Industry
Growth
25%
10 YR CAGR
DORM - 11.7%
Aftermarket Industry - 2.8%
20%
15%
10%
5%
0%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
1H'15
-5%
Yr/Yr Sales Growth
Industry Growth
Source: Jefferies estimates, company data, AutoCare Association
Parts proliferation (unique SKUs per model year +54% in the current decade to more than
66,000 parts) has been a structural tailwind expanding DORMs addressable market, as
DORMs parts offering has grown substantially with SKU count now surpassing 140,000
(up from 70,000 in 2005). With a product offering spanning more than 150 categories,
we believe maintaining the pace of introductions becomes modestly more difficult as the
pace of parts proliferation in the industry lessens with more manufacturers focusing on
common platforms (Ex. Ford targeting 8 primary platforms vs 27 in 14). As outsized sales
growth leverages relatively light fixed overhead DORM has seen robust margin
expansion since 2005 (Chart 6). As customer concentration likely limits gross margin to
an upper bound we estimate to be in the area of 40%, we believe the ability to deliver
incremental EBIT margin will lie in fixed cost leverage from sustained sales growth.
Notably, 14 gross margin declined yr/yr (roughly 110 bps) due to mix shift and
competitive pricing pressures as customers (notably AAP) focused on lowering acquisition
costs in commodity (multiple source) products.
Chart 6: Historical Gross and Operating Margins
45%
40% 35.5%
35%
35.0%
34.3%
32.2%
34.9%
37.9%
36.6%
37.7%
39.3%
38.2%
30%
25%
20%
15%
10.7%
10.0%
10.5%
2005
2006
2007
10%
8.3%
16.7%
16.7%
2010
2011
18.3%
19.3%
18.7%
2012
2013
2014
11.6%
5%
0%
2008
2009
Gross Margin
Operating Margin
page 7 of 20
DORM
Initiating Coverage
October 20, 2015
Groundwork for growth was built on product re-engineering
A primary driver of growth to-date, DORMs research and development spend has
increased roughly 28% (5 year CAGR). We expect continued robust expansion of R&D
spend as DORM looks to develop new products. We also anticipate a residual benefit
from past engineering headcount growth as the ramp in productivity appears to be a
several year curve.
Chart 7: Annual R&D Spend ($M's)
$18
28.0% 5 Yr CAGR
$16
$15.8
$13.4
$14
$12
$10.5
$10
$8.6
$8
$6
$4.6
$4
$2
$0
2010
2011
2012
2013
2014
DORMs robust sales growth and margin expansion has attracted competitors, most
notably Standard Motor Products TechSmart division in the re-engineered part space, as
well as traditional parts manufacturers copying DORM offerings in successful categories.
However, we note primary competitors have only small re-engineered parts offerings and
ramp will likely be a slow process given the need for substantial engineering staff and a
pulse on the installer channel to identify applicable high failure SKUs. We also note
retailers direct sourcing from Asia is unlikely to occur in DORMs product categories given
higher engineered parts complexity and the one-off nature of many products. Therefore,
we do not foresee a meaningful risk to DORM market share from retailer bias to direct
source lower cost parts. Historical and forecasted revenue growth is presented in Chart
8.
page 8 of 20
DORM
Initiating Coverage
October 20, 2015
Chart 8: Historical and Forecasted Revenue ($000's)
$900,000
$751,476
$800,000
$773,605
$831,629
$664,466
$700,000
$600,000
$524,624
20%
$570,420
15%
$455,716
$500,000
25%
$400,000
10%
$300,000
$200,000
5%
$100,000
$0
0%
2010
2011
2012
2013
Revenue
2014
2015E
2016E
Yr/Yr
Looking forward
As DORM looks to expand product offering, barring acquisitions, heavy duty and
hybrid/electric channels are the most visible growth legs. DORM launched a heavy duty
product offering in 2012, DORMAN HD Solutions. Since then, SKU count growth has
grown rapidly from 235 in 2013 to 550 in 2015, although still insignificant compared to
DORMs light vehicle offerings of more than 140,000 SKUs. Heavy duty segment revenue
remains a modest contributor at roughly 1% of sales ($7.5M). We believe growth could
ultimately be swift given that DORMs heavy duty customer channel is highly
consolidated with the potential for volume purchasing by fleet managers, while gross
margins associated with higher ticket HD SKUs would likely be accretive to aggregate
EBIT.
Chart 9: Heavy Duty Aftermarket Size ($B's)
$90
$80
$70
$64
$67
$69
$69
$68
$71
$74
$77
Chart 10: DORM Heavy Duty SKU Offering

$79
$82
600
550
500
$60
400
$50
300
$40
$30
300
235
200
$20
100
$10
$0
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: Jefferies estimates, AutoCare Association
2013
2014
2015
Aftermarket hybrid batteries have also been an emerging growth category for DORM.
DORM acquired Re-Involt Technologies, a hybrid battery remanufacturer, in May 2013 for
roughly $3.7M and launched their aftermarket hybrid battery program the following
September. With limited competition in the aftermarket hybrid battery space, we believe
DORM should benefit from a replacement cycle emerging in the early generation hybrid
fleet. While less than 1% of revenue, we believe the segment could be a considerable
page 9 of 20
DORM
Initiating Coverage
October 20, 2015
growth opportunity for DORM given a first-to-market advantage. However, we note
overall penetration of hybrid/electric vehicles remains relatively small versus total vehicle
population, likely capping near term contribution.
Chart 11: HEV Vehicle Population vs. Total Light Vehicle Population (Ms)
300
252.60
250
200
150
100
50
3.18
0
HEV
PARC
Source: Jefferies estimates, Energy.gov

However, as attempts to meet CAFE 2025 efficiency standards likely drives increased
penetration of HEVs, we foresee more meaningful longer term growth potential in the
space.
Chart 12: CAFE 2025
60.0
50.0
52.0
40.0
30.0
20.0
18.0
10.0
0.0
Source: Jefferies, US Environmental Protection Agency

Acquisitions on the horizon?
While not historically active in M&A, with Re-Involt the lone acquisition since 2010, we
believe DORM could become more acquisitive in line extensions (such as the Hybrid
initiative) or adjacent markets (Heavy Duty) to maintain targeted double digit top-line
growth rates. Ultimately, in keeping with managements risk and debt adverse profile,
we believe smaller, bolt-on technologies or businesses with expertise in underpenetrated
product categories or market segments would be targeted. We note our estimates do not
take into account incremental acquisitions.
And will recent management changes accelerate the strategy shift?
page 10 of 20
DORM
Initiating Coverage
October 20, 2015
Recent management changes could portend a shifting strategy potentially in favor of
acquisitions. On 9/24/15, DORM announced previous CEO Steve Berman will transition
to the role of Executive Chairman while current President Matt Barton will take over as
CEO (Mr. Barton previously served as CFO of Dorman from 1999 to 2011 and has served
as President since 2011). As a founder of Dorman, we believe Mr. Bermans transition
from an operating role to a more strategic position may be geared to allow him more
time to focus on acquisition strategy and future growth versus daily operations.
We also note that concurrently with the above noted management changes, current CFO
Matt Kohnke announced his resignation effective 2/26/16. DORM has commenced a
search for a new CFO. Individual management team highlights are provided below.
Executive Chairman Steven L. Berman co-founded DORM in 1978. Mr. Berman has held
several positions with the company including Chairman and CEO (January 2011 to
September 2015), President (2007-2011), and Executive VP (1978-2011).
As mentioned previously, recently appointed CEO Mathias J. Barton has held several
roles with DORM. Most recently, Mr. Barton served as President (August 2013 to
September 2015). Mr. Barton also served as CFO (1999-2011). Prior to joining the firm in
1999, Mr. Barton served as Senior VP and CFO of Central Sprinkler Corporation.
CFO Matthew Kohnke has served in his current role since February 2011. Prior to his
appointment as CFO, Mr. Kohnke served as VP Corporate Controller from 2002 to 2011.
Mr. Kohnke joined DORM in 2002 from Arthur Andersen LLP as a manager in the Audit
and Business Advisory practice. As mentioned previously, Mr. Kohnke announced his
resignation effective 2/26/16. DORM has commenced a search for a new CFO.
Financial Outlook
The Financial Outlook section provides a more in-depth look at our forward looking
assumptions.
2015 and 2016 Outlook
Our FY15 (calendar year end) revenue estimate of $774M (roughly 2.9% yr/yr) assumes
mid-single digit 2H revenue growth as AAP ordering patterns likely rebound from
depressed low single digit first half levels. We forecast gross margin expansion of 50 bps
yr/yr to 38.7% in 15 as 14 was negatively impacted by mix shift and competitive pricing
pressures. Our operating margin estimate of 18.8% (+10 bps yr/yr) assumes SG&A
deleverage (roughly 40 bps yr/yr) given incremental costs associated with ERP conversion.
Our FY15 EPS estimate of $2.59 would represent a roughly 4.0% yr/yr increase from
FY14 ($2.49).
Our FY16 revenue estimate of $832M (roughly 7.5% yr/yr) assumes accelerating product
sell-through although we note our estimate falls short of managements double digit
growth goal. Our estimate does not assume any growth from acquisitions. We estimate
gross margin expansion of 20 bps yr/yr to 38.9% primarily driven by improved sales
leverage. We also estimate operating margin expansion of 120 bps yr/yr to 20.0% as
DORM laps ERP conversion related costs. Our EPS estimate of $2.99 would represent a
15.6% yr/yr increase from our 15 estimate of $2.59.
Balance Sheet Outlook
page 11 of 20
DORM
Initiating Coverage
October 20, 2015
DORM maintains a healthy balance sheet with no debt and relatively stable receivable and
payable turns. Inventory turns have deteriorated modestly (Table 1) primarily due to
increased new product development since 2010.
Table 1: Relevant Balance Sheet Metrics
2010
0%
2.78x
4.32x
9.55x
Debt/Capital
Inventory Turns
Receivable Turns
Payable Turns
2011
0%
2.66x
4.86x
10.09x
2012
0%
2.66x
4.22x
8.33x
2013
0%
2.68x
4.05x
8.36x
2014
0%
2.61x
3.91x
8.03x
Cash Flow Outlook

Operating cash flow and free cash flow have benefited from rapid earnings growth, again
driven by new product innovation. CapEx has increased as a percentage of revenue as
DORM continues to spend for growth.
Table 2: Relevant Cash Flow Metrics

Cash flow from operations
(000's)
Free cash flow (000's)
FCF/Share ($)
CapEx as a % of Revs
2010
2011
2012
2013
2014
30,716
38,063
48,911
61,559
59,640
19,263
$0.53
2.5%
19,961
$0.55
3.5%
30,833
$0.84
3.2%
36,893
$1.01
3.7%
29,778
$0.82
4.0%
Valuation Analysis
DORM trades at a premium to peers given an innovative product pipeline, extensive
rapport with installers and above peer historical earnings growth rate. Our $56 price
target is based on 18.7x our FY16 EPS estimate of $2.99, a 9.7% premium to DORMs
five year historic forward P/E multiple (17.0x), and comparing favorably to DORMs mean
industry and S&P500 premiums of 25.0% and 14.7%, respectively. We also note our price
target comes in at 10.5x our outyear EBITDA estimate of $183M which compares to
DORMs 5-year mean EV/EBITDA multiple of 8.0x. We initiate coverage on the shares with
a Hold rating.
page 12 of 20
DORM
Initiating Coverage
October 20, 2015
Chart 13: Historical Forward P/E Multiple vs. 5 Year Mean
Chart 14: Historical EV/EBITDA Multiple vs. 5 Year Mean

16x
25x
14x
20x
12x
15x
10x
10x
8x
5x
6x
0x
4x
10/07/2010
12/16/2010
02/28/2011
05/09/2011
07/19/2011
09/27/2011
12/06/2011
02/16/2012
04/27/2012
07/09/2012
09/17/2012
11/28/2012
02/08/2013
04/22/2013
07/01/2013
09/10/2013
11/18/2013
01/30/2014
04/10/2014
06/20/2014
08/29/2014
11/07/2014
01/21/2015
04/01/2015
06/11/2015
08/20/2015
30x
DORM
2x
0x
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
DORM
5 Year Mean
Source: Jefferies estimates, Factset
5 Year Mean
Source: Jefferies estimates, FactSet
Historically, over a five year period, DORM share performance of 218.3% has considerably
outpaced S&P500 price appreciation of 72.9%. YTD, DORM has also outperformed the
S&P500 as shares have appreciated roughly 5.7% vs. S&P 500 performance of -1.2%.
Chart 15: 5 Year Historical Price Performance (Indexed)
Chart 16: YTD Historical Price Performance (Indexed)
400
115
350
110
300
105
250
100
200
95
150
50
85
80
DORM
12/31/14
1/13/15
1/26/15
2/05/15
2/18/15
3/02/15
3/12/15
3/24/15
4/06/15
4/16/15
4/28/15
5/08/15
5/20/15
6/02/15
6/12/15
6/24/15
7/07/15
7/17/15
7/29/15
8/10/15
8/20/15
9/01/15
9/14/15
9/24/15
10/06/15
10/16/15
90
10/15/10
12/27/10
3/08/11
5/17/11
7/27/11
10/05/11
12/14/11
2/27/12
5/07/12
7/17/12
9/25/12
12/06/12
2/19/13
4/30/13
7/10/13
9/18/13
11/26/13
2/07/14
4/21/14
6/30/14
9/09/14
11/17/14
1/29/15
4/10/15
6/19/15
8/28/15
100
DORM
SP50
Source: Factset
page 13 of 20
SP50
Source: Factset
DORM
Initiating Coverage
October 20, 2015
Exhibit 1: Dorman Products Income Statement
Dorman Products, Inc. (DORM)
EARNINGS MODEL (FYE: December)
($ 000's, except per share)
FY11
FY12
FY13
Total Net Sales

CoGS
Gross Profit
SG&A
Operating income
Interest expense
EBT
Taxes
Net Income (Loss)
Non-GAAP Net Income
$ 524,624
332,636
$ 191,988
104,562
$
87,426
(138)
$
87,288
31,236
$
56,052
$
56,052
$ 570,420
355,211
$ 215,209
110,978
$ 104,231
(123)
$ 104,108
37,703
$
66,405
$
66,405
$ 664,466
403,498
$ 260,968
133,029
$ 127,939
(189)
$ 127,750
45,830
$
81,920
$
81,920
Diluted Shares Outstanding

Diluted non-GAAP Operating EPS
36,447
1.54
EBITDA
95,163
$ 112,456
MARGIN ANALYSIS
Net sales
CoGS
Gross profit
SG&A Expenses
Operating margin
Interest expense, net
EBT
Provision for income taxes
Net income
36,592
1.81
1Q14
2Q14
3Q14
4Q14
$ 183,512
$ 111,870
$
71,642
34,695
$
36,947
(39)
$
36,908
13,357
$
23,551
$
23,551
$ 196,187
$ 123,226
$
72,961
36,261
$
36,700
(63)
$
36,637
13,393
$
23,244
$
23,244
$ 197,796
$ 121,915
$
75,881
37,405
$
38,476
(58)
$
38,418
13,882
$
24,536
$
24,536
$ 173,981
$ 107,264
$
66,717
38,106
$
28,611
(44)
$
28,567
9,911
$
18,656
$
18,656
FY14
$ 751,476
464,275
$ 287,201
146,467
$ 140,734
(204)
$ 140,530
50,543
$
89,987
$
89,987
1Q15
2Q15
3Q15E
4Q15E
$ 188,474
$ 115,581
$
72,893
39,241
$
33,652
(52)
$
33,600
12,261
$
21,339
$
21,339
$ 198,721
$ 122,151
$
76,570
39,675
$
36,895
(52)
$
36,843
13,700
$
23,143
$
23,143
$ 203,730
$ 124,683
$
79,047
38,505
$
40,542
(30)
$
40,512
14,787
$
25,725
$
25,725
$ 182,680
$ 111,618
$
71,063
36,536
$
34,527
(10)
$
34,517
12,599
$
21,918
$
21,918
FY15E
FY16E
$ 773,605
474,032
$ 299,573
153,957
$ 145,616
(144)
$ 145,472
53,347
$
92,125
$
92,125
$ 831,629
507,927
$ 323,703
157,051
$ 166,652
(120)
$ 166,532
60,784
$ 105,748
$ 105,748
36,624
2.24
36,549
0.64
36,471
0.64
36,024
0.68
35,669
0.52
36,178
2.49
35,643
0.60
35,614
0.65
35,772
0.72
35,455
0.62
$ 138,098
39,807
39,676
41,641
32,268
$ 153,392
37,270
40,873
44,209
38,545
$ 160,898
35,621
2.59
35,363
2.99
$ 183,284
100.0%
63.4%
36.6%
19.9%
16.7%
0.0%
16.6%
6.0%
10.7%
100.0%
62.3%
37.7%
19.5%
18.3%
0.0%
18.3%
6.6%
11.6%
100.0%
60.7%
39.3%
20.0%
19.3%
0.0%
19.2%
6.9%
12.3%
100.0%
61.0%
39.0%
18.9%
20.1%
0.0%
20.1%
7.3%
12.8%
100.0%
62.8%
37.2%
18.5%
18.7%
0.0%
18.7%
6.8%
11.8%
100.0%
61.6%
38.4%
18.9%
19.5%
0.0%
19.4%
7.0%
12.4%
100.0%
61.7%
38.3%
21.9%
16.4%
0.0%
16.4%
5.7%
10.7%
100.0%
61.8%
38.2%
19.5%
18.7%
0.0%
18.7%
6.7%
12.0%
100.0%
61.3%
38.7%
20.8%
17.9%
0.0%
17.8%
6.5%
11.3%
100.0%
61.5%
38.5%
20.0%
18.6%
0.0%
18.5%
6.9%
11.6%
100.0%
61.2%
38.8%
18.9%
19.9%
0.0%
19.9%
7.3%
12.6%
100.0%
61.1%
38.9%
20.0%
18.9%
0.0%
18.9%
6.9%
12.0%
100.0%
61.3%
38.7%
19.9%
18.8%
0.0%
18.8%
6.9%
11.9%
100.0%
61.1%
38.9%
18.9%
20.0%
0.0%
20.0%
7.3%
12.7%
EBITDA Margin
18.1%
19.7%
20.8%
21.7%
20.2%
21.1%
18.5%
20.4%
19.8%
20.6%
21.7%
21.1%
20.8%
22.0%
Tax Rate
35.8%
36.2%
35.9%
36.2%
36.6%
36.1%
34.7%
36.0%
36.5%
37.2%
36.5%
36.5%
36.7%
36.5%
% CHANGE YR/YR
Net sales
CoGS
Gross profit
SG&A Expenses
Operating income
Interest expense, net
EBT
Provision for income taxes
Net income
15.1%
17.6%
11.1%
7.8%
15.2%
-34.0%
15.3%
8.0%
19.9%
8.7%
6.8%
12.1%
6.1%
19.2%
-10.9%
19.3%
20.7%
18.5%
16.5%
13.6%
21.3%
19.9%
22.7%
53.7%
22.7%
21.6%
23.4%
18.8%
19.5%
17.8%
12.2%
23.5%
-18.8%
23.6%
23.8%
23.5%
20.9%
25.9%
13.4%
7.9%
19.3%
18.9%
19.3%
17.9%
20.2%
11.2%
12.6%
8.9%
9.9%
7.9%
23.4%
7.8%
9.0%
7.2%
2.5%
3.4%
1.0%
10.5%
-9.5%
7.3%
-9.5%
-9.5%
-9.5%
13.1%
15.1%
10.1%
10.1%
10.0%
7.9%
10.0%
10.3%
9.8%
2.7%
3.3%
1.7%
13.1%
-8.9%
33.3%
-9.0%
-8.2%
-9.4%
1.3%
-0.9%
4.9%
9.4%
0.5%
-17.5%
0.6%
2.3%
-0.4%
3.0%
2.3%
4.2%
2.9%
5.4%
-48.3%
5.5%
6.5%
4.8%
5.0%
4.1%
6.5%
-4.1%
20.7%
-77.3%
20.8%
27.1%
17.5%
2.9%
2.1%
4.3%
5.1%
3.5%
-29.4%
3.5%
5.5%
2.4%
7.5%
7.2%
8.1%
2.0%
14.4%
-16.7%
14.5%
13.9%
14.8%
Diluted Shares Outstanding

Diluted Operating EPS
0.5%
19.4%
0.4%
18.0%
0.1%
23.3%
-0.2%
23.7%
-0.6%
20.9%
-1.7%
9.0%
-2.4%
-7.3%
-1.2%
11.2%
-2.5%
-7.1%
-2.3%
2.0%
-0.7%
5.6%
-0.6%
18.2%
-1.5%
4.0%
-0.7%
15.6%
page 14 of 20
DORM
Initiating Coverage
October 20, 2015
Exhibit 2: Dorman Products Balance Sheet
Balance Sheet (FYE: December)
Assets
Current assets:
Cash and equivalents
Accounts receivable
Inventories
Bulk product
Finished product
Packaging materials
check
Prepaid expenses and other
Deferred taxes
Total current assets
Property under capitalized leases
Buildings
Machinery, equipment, and tooling
Furniture, fixtures, and leasehold improvements
Computer and other equipment
Total PP&E, gross
Less accumulated depreciation
PP&E, net
Goodwill
Other assets
Total Assets
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable
Accrued salaries and other
Other accrued liabilities
Long-term debt, current
Total current liabilities
Long-term debt, less current
Other long-term liabilities
Deferred income taxes
Shareholders' equity:
Common stock
Restricted stock
Warrants
Additional paid-in capital
Retained earnings
Cumulative translation adjustments
Total shareholders' equity
Total liabilities and shareholders' equity
FY11
50,196
124,324
115,845
FY12
27,708
133,806
145,270
FY13
60,593
180,777
164,421
1Q14
2Q14
64,021
186,087
175,380
$ 53,984
188,127
183,764
3Q14
44,210
189,220
180,155
4Q14
47,656
206,035
173,523
FY14
47,656
206,035
173,523
1Q15
64,599
201,142
183,038
2Q15
67,199
197,292
198,782
3Q15E
70,035
202,178
197,036
4Q15E
74,192
203,777
194,604
FY15E
1Q16E
2Q16E
3Q16E
4Q16E
FY16E
2,661
17,127
310,153
2,332
20,559
329,675
5,851
20,798
432,440
2,825
21,060
449,373
6,358
21,310
453,543
3,422
21,258
438,265
3,147
25,103
455,464
3,147
25,103
455,464
2,514
25,402
476,695
3,827
25,701
492,801
3,827
25,701
498,777
3,827
25,701
502,101
74,192
203,777
194,604
3,827
25,701
502,101
38,904
26,553
1,083
$ 376,693
48,758
26,553
1,323
$ 406,309
64,786
30,089
1,854
$ 529,169
69,491
30,064
2,287
$ 551,215
75,848
30,039
2,457
$ 561,887
80,972
30,014
2,935
$ 552,186
82,270
29,989
12,645
$ 580,368
82,270
29,989
12,645
$ 580,368
84,460
29,964
14,067
$ 605,186
85,202
29,939
17,351
$ 625,293
89,535
29,939
17,351
$ 635,602
93,516
29,939
17,351
$ 642,907
93,516
29,939
17,351
$ 642,907
96,945
29,939
17,351
$ 668,059
100,152
29,939
17,351
$ 687,327
103,293
29,939
17,351
$ 704,544
106,883
29,939
17,351
$ 714,211
106,883
29,939
17,351
$ 714,211
58,303
32,801
$ 59,506
27,139
31,646
12,907
44,553
42,387
9,843
5,081
61,255
30,483
-
53,955
28,346
59,541
31,292
59,541
31,292
-
60,480
35,594
67,411
26,642
61,995
26,642
57,382
26,642
57,382
26,642
90,748
203,327
200,222
$ 103,436
205,471
201,450
$ 117,098
205,833
201,503
$ 122,148
205,678
202,684
3,827
25,701
523,825
3,827
25,701
539,885
3,827
25,701
553,962
3,827
25,701
560,038
$ 122,148
205,678
202,684
3,827
25,701
560,038
67,613
26,642
69,923
26,642
68,089
26,642
62,938
26,642
62,938
26,642
57,311
91,738
91,104
86,645
82,301
90,833
90,833
96,074
94,053
88,637
84,024
84,024
94,255
96,565
94,731
89,580
89,580
3,447
12,679
5,310
18,480
5,021
18,116
5,358
18,317
5,694
18,506
4,822
22,652
466,883
22,652
4,462
22,024
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
4,632
21,835
180
365
35,711
41,007
281,465
291,500
(253)
317,103
332,872
$ 376,693 $ 406,309
365
43,119
370,157
413,641
$ 529,169
365
363
356
356
356
44,032
392,577
44,165
407,039
43,605
401,724
44,001
438,269
44,078
460,339
436,974
$ 551,215
451,567
$ 561,887
445,685
$ 552,186
462,061
$ 580,368
462,061
$ 580,368
482,626
$ 605,186
504,773
$ 625,293
520,498
$ 635,602
532,416
$ 642,907
532,416
$ 642,907
547,337
$ 668,059
564,296
$ 687,327
583,346
$ 704,544
598,164
$ 714,211
598,164
$ 714,211
3,406
11,631
page 15 of 20
DORM
Initiating Coverage
October 20, 2015
Exhibit 3: Dorman Products Statement of Cash Flows
Statement of Cash Flows (FYE: December)
FY11
FY12
FY13
1Q14
2Q14
3Q14
4Q14
FY14
1Q15
2Q15
3Q15E
Net income
Depreciation and amortization
Goodwill impairment
Provision for doubtful accounts
(Benefit) provision for deferred income taxes
Provision for non-cash stock compensation
Other operating activities
Total change in NWC
Cash provided by operating activities
53,277 $ 70,962 $ 81,920 $ 23,551 $ 23,244 $

7,737
8,225
10,159
2,860
2,976
318
266
194
70
61
(1,997)
(2,384)
267
(626)
(49)
620
1,007
960
490
554
2,583
(2,987)
(24,475)
(26,178)
(31,941)
(15,201)
(18,748)
$ 38,063 $ 48,911 $ 61,559 $ 11,144 $
8,038 $
24,536
3,165
(272)
28,224 $
(9,606)
(43,827)
12,234 $ 59,640 $
(576)
(15,795)
23,804 $ 11,051 $
Property, plant and equipment additions

Purchase of short term investments
Proceeds from maturities of short term investments
Business acquisition, net of cash acquired
Other investing activities
Cash used in investing activities
(18,102)
(18,078)
(24,666)
(1,897)
$ (18,102) $ (18,078) $ (26,563) $
(5,749)
Repayment of long-term debt obligations

Net proceeds (repayment) of revolving credit facility
Proceeds from exercise of stock options
Other stock related activity
Purchase and cancellation of common stock
Other financing activities
Cash used in financing activities
308
(632)
1,146
21,339
3,618
10
(927)
340
23,143
3,978
25,725
3,667
4Q15E
$
21,918
4,019
FY15E
1Q16E
24,921
4,071
(8,556)
20,836 $
92,125 $
15,282
35
(1,415)
528
(3,780)
(28,708)
22,157 $ 77,848 $
(5,267)
(2,000)
(8,000)
(8,000)
(8,000) $
(8,000) $ (29,016) $
25
(488)
188
2Q16E
$
26,959
4,292
3Q16E
$
29,050
4,360
4Q16E
$
FY16E
24,818
3,909
(1,063)
30,188 $
(2,248)
31,162 $
$ 105,748
16,633
(6,177)
(4,424)
22,550 $ 117,956
(7,500)
(7,500)
(7,500)
(7,500)
(7,500) $
(7,500) $
(7,500) $
(7,500) $ (30,000)
5,065
34,056
(6,870)
(7,008) $
0
(8,870) $
(7,114) $
0
(6,870) $ (29,862) $
(5,749) $
(7,267) $
262
199
(1,169)
(2)
(110)
(9,093)
262
(2,180)
118
(1,230)
(69)
(1,115)
(1,112) $
(1,184) $ (10,000) $ (10,000) $ (22,296) $ (10,000) $ (10,000) $ (10,000) $ (10,000) $ (40,000)
19,733
$ (22,488) $
32,885
3,428
Cash and cash equivalents - BOP

Cash and cash equivalents - EOP
30,463
50,196
50,196
27,708
27,708
60,593
60,593
64,021
FCF
FCF/Share
$
$
19,961
0.55
$
$
30,833
0.84
$
$
36,893
1.01
$
$
4,136
0.11
$
$
(224)
89
(198)
(364)
89,987
12,658
(7,114)
Net increase in cash and cash equivalents
Effect of exchange rate changes
(8,870)
(2,111) $
88
241
466
18,656
3,657
(7,008)
629
1,606
953
1,663
(1,586)
(1,943)
(54,716)
(4) $ (53,390) $
551
827
(3,489)
(708) $
203
(8)
(31,079)
(9,205) $ (30,884) $
(29,862)
463
343
(43,521)
(1,918) $ (42,715) $
(10,000)
(27,016)
(2,000)
49
(22,345)
(10,000)
(10,000)
(10,000)
(10,000)
(30,000)
-
(40,000)
(10,000)
69
$ (10,037) $
64,021
53,984
(9,774) $
3,446
$ (12,937) $
16,943
2,600
2,836
4,157
26,536
16,556
12,688
13,662
5,050
47,956
53,984
44,210
44,210
47,656
60,593
47,656
47,656
64,599
64,599
67,199
67,199
70,035
70,035
74,192
47,656
74,192
74,192
90,748
90,748
$ 103,436
103,436
$ 117,098
117,098
$ 122,148
74,192
$ 122,148
(832) $
(0.02) $
21,110
0.59
$
$
5,364
0.15
$
$
29,778
0.82
$
$
18,055
0.51
$
$
5,784
0.16
$
$
12,836
0.36
$
$
14,157
0.40
$
$
50,832
1.43
$
$
26,556
0.75
$
$
$
$
$
$
$
$
22,688
0.64
23,662
0.67
15,050
0.43
87,956
2.49
page 16 of 20
DORM
Initiating Coverage
October 20, 2015
Company Description
DORM is a supplier of replacement parts and fasteners for both light vehicle and heavy duty trucks in the automotive aftermarket. DORM
designs, engineers and distributes roughly 140,000 SKU's. DORM is the primary aftermarket supplier of OE "dealer exclusive" parts which
were traditionally available to consumers only from OE manufacturers. Roughly 85% of products sold are name brand.
Analyst Certification:
I, Bret Jordan, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
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or views expressed in this research report.
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or views expressed in this research report.
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Risks which may impede the achievement of our Price Target

page 17 of 20
DORM
Initiating Coverage
October 20, 2015
This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the
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Other Companies Mentioned in This Report

Advance Auto Parts, Inc. (AAP: $191.40, HOLD)
AutoZone, Inc. (AZO: $744.02, HOLD)
Genuine Parts Company (GPC: $83.28, BUY)
O'Reilly Automotive, Inc. (ORLY: $252.22, BUY)
The Home Depot, Inc. (HD: $123.10, BUY)
Wal-Mart Stores, Inc. (WMT: $58.85, HOLD)
Distribution of Ratings
IB Serv./Past 12 Mos.
Rating
BUY
HOLD
UNDERPERFORM
page 18 of 20
Count
Percent
Count
Percent
1126
827
148
53.59%
39.36%
7.04%
311
168
18
27.62%
20.31%
12.16%
DORM
Initiating Coverage
October 20, 2015
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page 19 of 20
DORM
Initiating Coverage
October 20, 2015
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COMPANY NOTE

October 20, 2015

USA | Industrials | Autos/Automotive Aftermarket

Initiating with a Hold - Expect Growth but

Bret Jordan, CFA *

EQUITY RESEARCH AMERICAS

Dorman Products (DORM)

Dorman Products, Inc.

October 20, 2015

Hold: $56 Price Target

Target Investment Thesis

A shift in strategy as DORM begins to

Other growth alternatives have limited

2016 EPS: $2.99; Target Multiple: 18.7x;

2016 EPS: $3.65; Target Multiple: 19.0x;

2016 EPS: $2.75; Target Multiple: 15.3x

Long Term Analysis

Long Term Financial Model Drivers

Organic Revenue Growth

The automotive aftermarket industry

Source: CapIQ, Jefferies estimates

Source: CapIQ, Jefferies estimates

Earnings Growth vs P/E

Recommendation / Price Target

Source: CapIQ, Jefferies estimates

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

THE LONG VIEW

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Double digit growth in a single digit world

Chart 2: Sales by Channel

Traditional (NAPA, Federated, etc.)

Retail (AAP, AZO, ORLY, PBY)

Other (Walmart, Home Depot)

Source: Jefferies, company data

Source: Jefferies, company data

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Chart 4: Annual Engineering Staff

Source: Jefferies estimates, company data

Source: Jefferies estimates, company data

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Source: Jefferies estimates, company data, AutoCare Association

Source: Jefferies estimates, company data

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Source: Jefferies, company data

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Source: Jefferies estimates, company data

Chart 10: DORM Heavy Duty SKU Offering

Source: Jefferies estimates, AutoCare Association

Source: Jefferies estimates, company data

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Source: Jefferies estimates, Energy.gov

Source: Jefferies, US Environmental Protection Agency

Please see important disclosure information on pages 17 - 20 of this report.

Bret Jordan, CFA, Equity Analyst, (617) 342-7926, bjordan1@jefferies.com

Please see important disclosure information on pages 17 - 20 of this report.