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Bull of the Day: AutoZone, Inc. (AZO)

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AutoZone (AZO - Free Report) , a Zacks Rank #1 (Strong Buy), is one of the great stock market stories over the past few decades. The company’s longevity and continued stock price ascent speak to management’s ability to adapt to the ever-changing market landscape.

AutoZone stock hit an all-time high just last month before retreating slightly along with the market. Part of the Zacks Retail and Wholesale sector (ranked in the top 32% of all 16 Zacks sectors), AZO sports a Zacks Growth Style Score of ‘A’. This top score indicates AZO’s growth prospects are still enticing and its financial strength is sound.

Company Description

AutoZone is a leading retailer and distributor of automotive replacement parts and accessories. The company provides various components for cars, utility vehicles, vans, and light trucks. Its products include familiar vehicle parts such as batteries, A/C compressors, belts and hoses, fuel pumps, fuses, starters and alternators, and thermostats.

AZO maintains stores in the U.S., Puerto Rico, Mexico and Brazil, operating approximately 6,800 locations. In addition to storefronts, AutoZone also sells its products and accessories through several websites including AutoZone.com. AZO was founded in 1979 and is headquartered in Memphis, TN.

Sales and Earnings Trends

In fiscal 2021, AZO reported a year-over-year increase in net revenues to $14.63 billion, with domestic same store sales rising 13.6%. The company’s sustained revenue growth is striking as it has generated record sales for 23 consecutive years. For the most recent quarter ending this past November (fiscal Q1 2022), net sales grew 16.3% to $3.67 billion which exceeded the Zacks Consensus Estimate of $3.36 billion. The replacement part company reported EPS of $25.69, a 23.33% positive surprise over the $20.83 Zacks Consensus Estimate.

The AZO growth engine is expected to remain hot this year as analysts have increased their fiscal 2022 EPS estimates by 9.73% in the past 60 days. The Zacks Consensus Estimate now stands at $107.24, representing growth of 12.66% relative to fiscal ’21. Sales are seen climbing by 6.2% to $15.53 billion.

Zacks Investment ResearchImage Source: Zacks Investment Research

AZO has established a healthy track record of earnings surprises as the firm has surpassed estimates in each quarter for the past four years running. AutoZone has delivered a trailing four-quarter average earnings surprise of 23.17%.

AutoZone, Inc. Price and EPS Surprise

AutoZone, Inc. Price and EPS Surprise

Let’s Get Technical

Since the bottom of the pandemic-induced market plunge in March 2020, AZO has more than doubled the return of the S&P 500, with shares appreciating 167.15%. This is the kind of stock you want to include in your portfolio – one with both strong fundamentals as well as technicals. The stock trended very well over the last 12 months, and we can see below that the 100-day moving average (yellow line) served as support throughout the majority of the last year.

Zacks Investment ResearchImage Source: Zacks Investment Research

The moving average lines are all sloping up and the stock continues to make a series of new 52-week (and all-time) highs. While AZO has pulled back slightly in recent weeks along with the market, the stock is looking to find support at a familiar trendline and new highs may be just around the corner. Cautious investors may feel hesitant about investing in a stock that has come this far over decades, but the fact is this elite company is still outperforming.

Near-Term Outlook

During the fiscal first quarter, AutoZone opened 15 stores in the U.S., two in Mexico and one in Brazil. In total, the company expects to open 20 domestic mega hubs and 200 new stores across America over the next 12 months. This key expansion is set to boost company prospects and elevate the sustained sales and earnings trends.

In fiscal 2021, AZO repurchased $3.4 billion worth of company stock. Even more noteworthy, the company has bought back almost 90% of its outstanding shares since 1998. During the most recent quarter, AZO repurchased 515,000 shares for $900 million at an average price of $1,749 per share. And on December 15th, AutoZone’s Board of Directors authorized the buyback of an additional $1.5 billion of common stock related to the company’s ongoing share-repurchase program. Further share buybacks will continue to assist the performance of the stock going forward.

Bottom Line

AZO is part of the Zacks Automotive – Retail and Wholesale – Parts industry group, which ranks in the top 9% out of all 254 industry groups. In case readers needed another reason to consider this stock, quantitative studies suggest that about half of a stock’s price appreciation is due to its industry grouping. By investing in stocks in the top-performing industry groups, investors can add a ‘tailwind’ to their trading success.

Robust sales and earnings growth combined with a strong technical trend certainly justify adding shares to the mix. This long-term stock market winner continues to prove its doubters wrong, and investors would be wise to consider it as a candidate if they haven’t already done so.


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