AutoZone On Cruise Control

4/18/2011


  Recent Price
$278
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
17
  Shares (millions)
14
  52-Week Price Range
$279.94 - $171.65

Auto-parts retailer AutoZone ($278; AZO) has posted nine straight quarters of at least 20% growth in per-share earnings and 18 consecutive quarters of double-digit growth, a stretch that spans both the recession and the spike in gasoline prices that preceded it.

The company operates two chief businesses. The do-it-yourself (DIY) aftermarket caters to those who work on their own cars. The commercial business supplies parts to garages. With families planning summer trips, AutoZone has entered its peak sales season.

The company generated higher operating cash flow in five of the last six quarters, and cash provided by operations rose 29% to $27.27 per share in the 12 months ended February. With an Overall Quadrix® score of 94 and scores of 60 or higher for all six categories, AutoZone is a Buy and a Long-Term Buy.

Business breakdown

Founded in 1979, AutoZone operates 4,674 stores in the U.S., Puerto Rico, and Mexico. Slightly more than half of its stores participate in the commercial-sales program that delivers parts to repair garages, dealers, and service stations. Both retail and commercial units are gaining market share, AutoZone says.

AutoZone controls the largest slice of the $42 billion DIY market, with a 14% share. The commercial unit, launched in the mid-1990s, accounts for roughly 12% of AutoZone's sales. The unit's sales growth has accelerated in nine straight quarters, including a 21% jump in the February quarter. AutoZone has penetrated only a small portion of the highly fragmented $55 billion commercial market, so more growth should lie ahead.

U.S. same-store sales — up in nine consecutive quarters, including a 7.1% jump in the February quarter — have benefited from higher foot traffic and higher transaction values. Failure items — encompassing such products as batteries, radiators, and mufflers — represented 47% of February-quarter sales. Maintenance items — such as windshield wipers and transmission fluid — contributed 40% of sales. Discretionary items — including seat covers and floor mats — played a smaller role in the revenue story, common during the winter months.

U.S. drivers continue to put off routine maintenance and nonessential repairs, but other factors tilt in AutoZone's favor, including the trend for Americans to hold onto their cars longer. Rising fuel prices and stronger new-car sales could reverse that trend, though as of February AutoZone said it had yet to see an impact from recent increases in gasoline prices.

Conclusion

Management cut 12% off its share count in the past year through stock buybacks. In fact, shares outstanding have declined 43% over the last five years. ESL Investments, a privately owned hedge fund, owns a 33% stake in the company.

Wall Street projects 21% higher per-share earnings in the May quarter and 25% growth for the fiscal year ending August. Shares trade at less than 17 times trailing earnings, a 10% discount to AutoZone's peer-group average. An annual report for AutoZone Inc. is available at 123 S. Front St., Memphis, TN 38103; (901) 495-6500; www.autozone.com.

 

AUTOZONE
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Feb '11
3.34
vs.
2.46
+ 10%
276.00
-
246.26
17 - 15
Nov '10
3.77
vs.
2.82
+ 13%
260.25
-
210.25
17 - 14
Aug '10
5.56
vs.
4.43
+ 10%
215.21
-
183.70
16 - 13
May '10
4.12
vs.
3.13
+ 10%
195.75
-
162.57
15 - 13
           
Year
(Aug.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
7.36
14.97
0.00
215.21
-
135.13
14 - 9
2009
6.82
11.73
0.00
169.99
-
84.66
14 - 7
2008
6.52
10.04
0.00
142.49
-
103.07
14 - 10
2007
6.17
8.53
0.00
140.29
-
89.34
16 - 10
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
94
83
63
93
72
76
60

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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