Autozone (NYSE: AZO) and its competitors like  Advance Auto Parts (NYSE: AAP) have been running rings around the average S&P 500 company and it doesn’t look like that is going to end soon. Not only has the company been able to sustain a market-beating pace of performance but robust capital returns are helping to support share prices as well. The only negative in the outlook is that institutions are selling the stock on balance but be careful and don’t read too much into that detail. Details within the institutional activity show their support is still high with ownership at 93% of the company and the activity there has been light and consistent with rotation. The stock is trading at all-time highs after all so it should be expected that winning positions are taking some profits off the table. 

Autozone Leads The Market Higher 

Autozone had a great quarter with top-line results boosted by organic and expansionary growth while the bottom line was aided by company efficiency and share repurchases. On the top line, Q1 2023 (calendar Q3 2022) revenue came in at $3.99 billion to set a quarterly record. This is up 8.6% versus last year and beat the Marketbeat.com consensus by 330 basis points. Sales strength was driven by a 5.6% increase in comp sales and the addition of 35 new stores. Comps were expected in the range of 3.5% so this is significant. On a segment basis, the commercial business grew by 15% to lead company growth. The retail segment also grew but at a slower pace. 

Moving down to the margin the news looks bad at first glance but is chock full of positive surprises. The gross margin contracted by 242 basis points is not good but offset by the fact that much of the decline is deleveraging relative to commercial business growth. The commercial business is a lower-margin business but adds strength to both the top and bottom lines that are on top of retail growth. Moving down to the income and earnings, operating profit fell by a smaller 4.2%, net income by an even smaller 2.9%, and GAAP EPS grew by 6.9% and beat the consensus by 820 bps. 

Autozone does not give official guidance but the trends are clear. Not only is commercial after-market business strong but so is the retail end which is both good and bad news. The goods news is that Autozone share prices should continue to trend higher aided by share repurchases, the bad news is that consumer demand and general economic health play into the idea the FOMC will hike interest rates to a peak above what the market currently expects and keep them there for longer. 

Analysts And Share Repurchases Drive Autozone Higher 

The company repurchased $0.90 billion worth of the stock during FQ1 and it still has $2.7 billion left under the current authorization. That’s worth 1.8% and 5.5% of the prerelease market cap respectively and the allotment is likely to be increased as it gets used up. This has the share price well supported on dips and the analysts are leading it higher on the bounces. The 16 analysts with current ratings have the stock pegged at a Moderate Buy with a price target that is moving higher as quickly or faster than the price action. The consensus target of $2494 is up 45% versus last year and 3.5% in the last month alone and there are yet to be any new targets released. When they are you can bet the consensus will move higher. 

Turning to the chart, the price action is trending higher at a near-45° angle with no signs of letting up. The most recent action has the stock at a peak but it’s one that looks like a consolidation/bullish continuation will happen more than a pullback. Trading at roughly 20X its earnings it is not exactly a value but it is a deal considering the growth, the earnings and the repurchases.