On Monday, June 30th, LKQ Corporation (NASDAQ:LKQ) announced they had signed a patent license agreement with Chysler Group. The exact significance of this announcement was a bit murky to the general public and investors until James J. Albertine of equity research firm Stifel stepped up to the plate yesterday with a company update explaining what this new agreement with Chrysler really means for LKQ Corporation.
Exclusive rights to sell certain Chrysler aftermarket parts
In the company update, Albertine explains that this new patent license agreement with Chrysler grants LKQ Corporation (NASDAQ:LKQ) exclusive rights to distribute and sell certain Chrysler aftermarket collision parts. The update also points out that the newly announced agreement appears quite similar to the current agreement between LKQ and Ford Motor Company (NYSE:F) (covering replacement parts for the Ford F-150 and Mustang), which was first signed in early 2009 and later renewed in Autumn 2011.
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The earlier Ford licensing agreement gives LKQ Corporation exclusive distribution rights in exchange for a royalty payment to Ford Motor Company (NYSE:F). Though we do not have specific details for the Chrysler agreement, we would suspect the parameters are essentially in line with the Ford agreement.
Overall positive development
Albertine argues that this new patent license agreement is a positive development for LKQ Corporation (NASDAQ:LKQ), “not only as it relates to exclusive (we suspect) distribution and sale rights for Chrysler parts, but also as it relates to OEM and alternative part market relations.”
A number of analysts have opined over the last couple pf years that perhaps automakers were looking to put the squeeze on aftermarket part manufacturers. Albertine says this new deal between LKQ Corporation (NASDAQ:LKQ) and Chrysler Group helps “dispel concerns related to OEMs specifically seeking to limit alternative part share gains in the auto aftermarket.”
Stifel rates LKQ Corporation a Buy
In the update, Albertine reiterates Stifel’s Buy rating on LKQ Corporation shares, and argues there’s significant upside from today’s price of $27 a share to his target price of $39 a share.