Is AutoZone (AZO) a Buy After Earnings?

AutoZone, Inc. (AZO), the leading retailer and distributor of automotive replacement parts and accessories, reported a beat on top and bottom lines in the fourth quarter of fiscal 2023, driven by solid demand for auto parts. The company posted quarterly revenue of $5.69 billion, compared to analysts’ estimate of $5.61 billion.

In addition, the auto parts retailer’s fourth-quarter EPS came in at $46.46 versus $45.23 as expected by analysts. Moreover, the company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.

Under its share repurchase program, AZO repurchased 403 thousand shares of its common stock during the fourth quarter at an average price per share of $2.502, for a total investment of $1 billion. For the fiscal year, the company repurchased 1.5 million shares of its common stock for a total investment of $3.7 billion. Share buybacks might enable AZO to generate additional shareholder value.

During the quarter, the company’s inventory increased 2.2% from the prior year’s quarter, driven by new store growth. The company opened 53 new stores in the U.S., 27 new stores in Mexico, and 17 in Brazil, for a total of 96 net new stores. For the full year, the company opened 197 net new stores.

Commenting on its solid performance delivered in the fourth quarter and fiscal year 2023, AZO’s Chairman, President, and CEO, Bill Rhodes, said, “Our customer service and trustworthy advice are what continue to differentiate us across the industry, and our AutoZoners’ commitment to delivering exceptional service has allowed us to continue to deliver strong financial results.”

“While we turn our focus to performance in the new fiscal year, we will remain committed to prudently investing capital in our business, and we will be steadfast in our long-term, disciplined approach to increasing operating earnings and cash flows while utilizing our balance sheet effectively,” Bill Rhodes added.

Shares of AZO have surged 3.5% over the past six months and 18% over the past year to close its last trading session at $2,475.12.

Let’s look at factors that could influence AZO’s performance in the upcoming months.

Solid Demand for Auto Parts and Accessories

According to a report by Market Research Future, the global automotive aftermarket is projected to reach $755 billion by 2026, growing at a CAGR of 7.5%. Increasing demand for auto vehicles, a steady growth in aftermarket sales, and a rising demand for electric and hybrid vehicles are some of the primary factors driving the market’s growth.

Further, the rising popularity of automotive customization, the introduction of new, advanced technologies, including navigation systems, infotainment systems, and advanced driver assistance systems, and the surge in e-commerce platforms offering auto parts and accessories would fuel the auto parts market’s profitability.

Thus, rising demand and spending on auto replacement parts and accessories remains a significant tailwind for AZO stock.

Robust Financials

For the fourth quarter that ended August 26, 2023, AZO’s net sales increased 6.4% year-over-year to $5.69 billion, while its gross profit rose 8.8% from the year-ago value to $3 billion. Its operating profit grew 10.8% year-over-year to $1.22 billion. The company’s income before taxes rose 7.1% from the prior-year quarter to $1.11 billion.

In addition, the company’s net income rose 6.8% from the year-ago value to $864.84 million, and its net income per share came in at $46.46, an increase of 14.7% year-over-year.

Solid Historical Growth

Over the past three years, AZO’s revenue and EBITDA grew at CAGRs of 11.4% and 10.6%, respectively. Its EBIT rose at a CAGR of 11.6% over the same time frame. Also, the company’s net income increased at a CAGR of 4.1% over the same period, while its EPS grew at a 22.5% CAGR.

Additionally, the company’s levered free cash flow grew at a CAGR of 3.5% over the same time frame, while its total assets increased at an 8.7% CAGR.

Favorable Analyst Estimates

Analysts expect AZO’s revenue for the fiscal 2024 first quarter (ending November 2023) to come in at $4.19 billion, indicating an increase of 5.2% year-over-year. The consensus EPS estimate of $31.16 for the current quarter reflects a 13.5% year-over-year improvement.

For the fiscal year ending August 2024, the company’s revenue and EPS are expected to grow 6.9% and 12.44% year-over-year to $18.67 billion and $148.83, respectively. Street expects its revenue and EPS for the next fiscal year 2025 to increase 9.2% from the previous year to $19.37 billion and $162.54, respectively.

High Profitability

AZO’s trailing-12-month gross profit margin of 51.96% is 46.57% higher than the 35.45% industry average. Moreover, the stock’s trailing-12-month EBIT margin and net income margin of 19.90% and 14.48% are significantly higher than the respective industry averages of 7.42% and 4.42%.

Furthermore, the stock’s trailing-12-month levered FCF margin of 9.93% is 94.9% higher than the industry average of 5.09%. Its trailing-12-month ROCE and ROTC of 35.56% and 15.82% favorably compared to the industry averages of 6.11% and 3.89%, respectively.

POWR Ratings Reflect Promise

AZO’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AZO has an A grade for Quality, consistent with its higher profitability relative to its peers.

AZO is ranked #29 out of 59 stocks in the A-rated Auto Parts industry.

Beyond what I have stated above, we have also given AZO grades for Growth, Sentiment, Value, Momentum, and Stability. Get access to all the AZO Ratings here.

Bottom Line

Auto Parts retailer AZO topped analysts’ estimates for revenue and earnings in the fourth quarter of 2023. Furthermore, analysts seem bullish about AZO’s prospects, as sustained demand for auto parts and accessories should bode well for the company. Given its solid financials, high profitability, and bright growth outlook, AZO could be an ideal investment after earnings.

How Does AutoZone, Inc. (AZO) Stack Up Against Its Peers?

While AZO has an overall POWR Rating of B, investors could also check out these other stocks within the Auto Parts industry with A (Strong Buy) rating: Allison Transmission Holdings, Inc. (ALSN), Garrett Motion Inc. (GTX), and Commercial Vehicle Group, Inc. (CVGI).

For exploring more A and B-rated auto parts stocks, click here.

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AZO shares were unchanged in premarket trading Wednesday. Year-to-date, AZO has gained 0.36%, versus a 17.47% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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