Stock (Symbol) |
AutoZone (AZO) |
Stock Price |
$747 |
Sector |
| Food & Necessities |
Data is as of |
| September 25, 2015 |
Expected to Report |
| Dec 7 – Dec 11 |
Company Description |
 AutoZone, Inc. is a retailer and a distributor of automotive replacement parts and accessories in the United States. The Company operates in two segments: Auto Parts Stores and Other. The Auto Parts Stores segment is a retailer and distributor of automotive parts and accessories through the Company’s 5,201 stores in the United States, Puerto Rico, Mexico and Brazil. Each store carries a product line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories and non-automotive products. The Other category reflects business activities of three operating segments, including include ALLDATA, which produces, sells and maintains diagnostic and repair information software used in the automotive repair industry; E-commerce, which includes direct sales to customers through www.autozone.com, and AutoAnything, which includes direct sales to customers through www.autoanything.com. Source: Thomson Financial |
Sharek’s Take |
 AutoZone (AZO) has been a hot stock recently. So much that its valuation is at a ten-year high. In the last year AZO’s gone from $550 to $800 give-or-take (+60%) as profits grew just 14%. Investors are impressed that the company is doing a little bit of everything right. AZO just completed its fiscal year and had sales growth of just 8%, with solid same store sales growth of 4% in addition to 19% web sales growth. Internet sales amount to just 4% of total sales and give AZO growth opportunity. More growth opportunity will come from delivering to stores more than once-a-week, having mega-hubs that support other locations and upping distribution centers from 9 to 12. What AZO does best is buyback its own stock, but with the P/E so high, debt around its limits, and spending up buyback impact won’t be felt as much. Today AZO sells for 20x earnings, higher than the 17 it sold for the past 2 years. The stock is currently on a roll and probably going higher near-term but the high P/E has taken the stock past my 2017 Fair Value. I created these charts on 9/25 and in 6 weeks the stock’s gone from $750 to $800, proving I’m obviously not bullish enough on the stock. Seems like AZO is on its way to $850. AZO is deserving of a higher multiple. |
One Year Chart |
 This chart is very pretty, but doesn’t show the strength the stock’s had recently through a tough market correction when AZO would barely fall then rebound quickly as the market hinted it was going higher. Keep in mind this chart is from when AZO was $750, now its $800 and the P/E is 20, deservedly so. Last qtr sales grew 8% as same store sales popped 5%, and with the stock buybacks profits grew 13%. Profits grew 14% last year and it looks like more of the same this year, but AZO has beaten the street by a bit in each of the last 4 qtrs. I love how Annual Profits have increased every year. |
Fair Value |
 Notice in the ten-year chart AZO’s median P/E ratio each year. Now the stock is embarking on a higher multiple (20) and really it deserves it. Steady mid-teens profit growth each year even during the recessions. That kind of quality is worth 20x earnings, maybe even 23. I wasn’t bullish enough on this stock 6 weeks ago and will boost my Fair Value P/E next qtr. |
Bottom Line |
 Most of AZO’s growth comes from stock buybacks. From 1998 to 2014 the company has reduced its share count from 160 million to 30 million. The company spent $1.3 billion in stock buybacks last year, but the EPS growth from buybacks have gone from 15% 2010-2012 to around 5% now. Also, stock buybacks have been partially done by issuing debt and pushing out payment terms to vendors (accounts payable), but these seem to be maxed out now. Plus these new distribution centers will take cash from buybacks.
AutoZone is a dependable stock for conservative growth investors. The quality is superb, and that’s why the P/E has gone from the mid-teens earlier in the decade to 20 today — deservedly so. The stock is perfect in the short-term but if you like to get stocks on sale then I would wait for a pullback. AZO ranks 9th of 29 stocks in the Conservative Growth Portfolio. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 9 of 29 |
