Now that it looks like the FED will not be raising interest rates anytime soon, the market is all of a sudden back in rally mode. With interest diving once again, the auto sector is starting to off. I see that AutoZone (AZO) is receiving another upgrade today. I have been following this stock since I wrote my book back in 2011.
AutoZone reported earnings not that long ago that beat the street in earnings, revenues, and with an improvement in inventory. AutoZone has made it quite a habit over the years to exceed analyst’s estimates.
AutoZone is a Multinational specialty store that focuses on various products for cars, sport utility vehicles, vans, and light trucks, including new and remanufactured automotive hard parts, maintenance items, accessories, and non-automotive products.
It seems that every time that I pull into an Autozone parking lot, several guys are under their cars performing one sort of maintenance or another. Be careful not to run them over!
The company is headquartered in Memphis, Tennessee and it has grown up to be $22.7 billion dollar market-cap company. I assign to it a moderate risk profile. It is purely a growth stock, as it does not pay a dividend.
As I mentioned previously, not too long ago the company reported 4th Qtr. earnings that beat the estimates of analyst. The company reported fiscal fourth-quarter net income of $401.1 million, having a net income of $12.75 per share beating the estimates of $12.67 by $0.06 per share.
The retailer also posted stellar revenue numbers for the quarter of $3.29 billion in the period beating the $3.25 billion that was expected. For the year 2015, the company reported profit of $1.16 billion, or $36.03 per share. Revenue was reported as $10.19 billion. Analysts had projected $12.69 in per share profit of $3.25 billion in sales for the same year.
The stock has been a stellar performer over the years!
Just check out the performance of AZO vs. the S&P 500 over the last 1, 3, 5, and ten years. Autozone has delivered some serious alpha to investors over the years.
Many different factors have contributed to the spark in the AutoZone name and earnings. One factor that has been playing greatly for AutoZone is the fact that the age of the average car in the United States continues to grow year over year, with the average car being 11.4 years old according to USDOT. And is expected to rise to 11.7 years by the year 2019.
With the trend of individuals keeping their cars longer, this gives AutoZone the opportunity to keep this growth alive by providing their parts and services to the consumer. Along with aging cars, the weather that has been so temperamental, especially with the El Nino in California, has also jump- started recent growth and revenues. This has created a need for safety products and replacement parts for ageing cars. This makes AutoZone the Healthcare provider to the automobile industry.
Given its long and strong record of performance, AutoZone is rarely cheap. It is currently trading at 16.3X next year’s EPS estimates. This is against an expected 5 year annual growth rate of 12.1%.
This makes for a PEG ratio of 1.35. Not cheap, but not expensive either. When I calculate AutoZone’s potential earnings five years from now, and then apply a multiple that I think is appropriate for the shares, I come up with a five-year target price of $1,295 per share.
When I wrote my book back in 2011, AutoZone was trading at $252 per share. My five-year target price at that time was $497 per share. With a current price of $740 per share, It has obviously reached that target and then some.
AutoZone currently receives a Value Grade of C+. Not great, but not bad either.
I like to combine performance or momentum with value. Right now AutoZone still possesses a nice blend of these two traits. When I calculate the two together and then compare AutoZone against the other 4,139 stocks, etf’s, and mutual funds in my Best Stocks Now Database, AutoZone comes in at #57 and carries with it a buy ranking. Gunderson Capital Management has a long position in the shares.