Get 18% Annualized Premium on the Largest Alternative Auto Parts Distributor in North America
LKQ is pricing a repairable claims cycle that never recovers. Pzena, Tweedy Browne and other value investors own it. We collect 18% annualized to wait — or own it at $21.65.
The trade: Selling a Cash Secured Put
Ticker: LKQ
Current Price: ~$25.50
Strike Price: $22.50
Strike Price to Current Price: −12%
Expiration: August 21, 2026
Premium: ~$0.85
Annualized Return: ~18%
Actual price if assigned: ~$21.65
The Company
LKQ Corporation is the largest distributor of alternative vehicle parts in North America. When a car gets into an accident, it needs bumpers, fenders, lights, and hundreds of other components. Those parts can come from the original manufacturer at full price, or from LKQ at a meaningful discount. Auto insurers and body shops have been choosing LKQ’s alternative parts at a steadily increasing rate for years. At nearly 40% utilization industry-wide — and still climbing — the trend is structural.
LKQ operates roughly 1,650 facilities across North America, Europe, and its Specialty segment. Its customers — collision shops, mechanical repair shops, and insurance companies — depend on it for speed, availability, and price. There is no national competitor at its scale.
The Opportunity
The stock is down roughly 40% from its 2022 highs because repairable collision claims have been depressed for three years. Higher insurance premiums pushed consumers to skip repairs, absorb costs out of pocket, or total vehicles they might otherwise have fixed.
That environment is reversing. Insurance premiums are easing. Used car values climbed 3.6% through Q1 2026, with March alone up 6.2%. As used car prices rise, more accidents cross the threshold from total loss into repairable claim territory. LKQ is one of the first beneficiaries.
State Farm — insuring roughly one in five American drivers — currently utilizes alternative parts at only about 60% of the rate its peers do. Closing that gap is a multi-year tailwind independent of any macro recovery.
The company is also simplifying. Activist investor Ancora has pushed for better capital allocation. The Self Service segment was sold in late 2025. A strategic review advised by Bank of America and Goldman Sachs is ongoing, with the Specialty segment a likely divestiture candidate. At roughly 8.5x forward earnings on what analysts believe are cyclically depressed numbers, the stock is pricing the trough, not the trend.
Value Investors That Already Own It
Richard Pzena - Pzena Investment Management
Tweedy Browne
Robert Olstein - Olstein Capital Management
Wallace Weitz - Weitz Investment Management
Why We Are Glad to Own It If Assigned
At an assigned cost of $21.65, we are buying the dominant alternative parts distributor in North America at a price that implies the repairable claims cycle never normalizes. LKQ has taken market share even as overall volumes declined. When volume recovers, the operating leverage is meaningful. The post-Covid analog is instructive — the last time repairable claims turned, the stock moved from under $20 to nearly $60.
We are being paid an ~18% annualized premium to wait. If the put expires worthless, we keep the premium. If we are assigned, we own the dominant alternative parts distributor in North America at $21.65 — 15% below where it trades today.
What Could Go Wrong
The central debate is whether the decline in repairable claims is cyclical or structural. If higher insurance premiums have permanently changed driver behavior, the volume recovery may be slower and shallower than the bull case assumes.
Europe remains a drag. Organic volumes declined 4% in Q1 2026, and the ERP migration completed in April introduces near-term execution risk. Leverage of 2.6x EBITDA limits flexibility in a prolonged downturn. The Specialty sale — which would fund meaningful buybacks — has stalled on tight credit markets.
We are aware of all of this. It is why the strike is set 12% below current prices.
Go deeper — further reading
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A quick note before you act.
This newsletter is for informational and educational purposes only. Nothing here constitutes financial advice or a recommendation to buy or sell any security. Options trading involves significant risk. Always do your own research and consult a qualified financial professional before making any investment decision.