AutoZone stock (AZO) could be an attractive investment opportunity, as the current price hovers above some crucial lines. Investors should closely look at the upcoming earnings report to gauge the future price of this stock.
AZO Business Structure
Leading U.S. merchant and distributor of auto accessories and spare parts, AutoZone, Inc. (AZO) primarily serves the do-it-yourself (DIY) marketplace but also provides services to skilled automotive repair facilities (also known as do-it-for-me or DIFM). The company was founded in 1979 and currently runs 7,236 locations globally, with a significant presence in the United States, Mexico, and Brazil. The company has steadily grown, opening roughly 190 new locations yearly, even during difficult times like the pandemic.
Products that meet failure demand account for 47% of AZO's revenue, followed by maintenance supplies (34%), discretionary goods (14%), and DIY and DIFM sections, which are growing steadily.
AZO's DIY Market
AZO dominates the do-it-yourself market with 18% percent of the market, outperforming rivals like Advance Auto Parts (8%) and O'Reilly (15%). Even though AZO currently only has a 2.5% market share in the commercial sector, there is still a lot of space for growth, particularly as it focuses on auto repair shops by offering quick parts shipment services utilizing its chain of hub stores.
The company has also experienced notable achievement in its commercial earnings, which since 2008 have increased at a CAGR (compound annual growth rate) of 13%, helping to contribute to a 5.5% CAGR in its overall revenue. Currently, 25% of the total earnings come from this commercial category.
AZO Earnings Growth Analysis
AZO is well-positioned financially with $18 billion in yearly earnings expected in 2023. Over the previous ten years, free cash flow has grown at an 8% CAGR while operating revenue growth has been steady at a 7.6% CAGR. With $24 billion invested in share buybacks over the last ten years, the business has a strong track record of providing value to investors. This has led to a 6.3% CAGR reduction in outstanding shares and a 17% CAGR increase in revenue per share (EPS).
With no dividends paid, AZO's capital distribution strategy is concentrated on buybacks and reinvestment, which has helped the company achieve an excellent return on invested capital (ROIC) of thirty percent.
AZO's Presence in the EV Market
House brands like Duralast generate more than 50% of earnings, and AZO's scale, broad distribution channel, and robust private label services give it a competitive edge. Despite the possibility of competition from e-commerce, especially in maintenance-related categories, AZO has an advantage due to its in-store accessibility and rapid repair services.
Notwithstanding obstacles like the adoption of electric vehicles (EVs) and probable sales recessions, the company has the potential for future growth as it keeps growing domestically and abroad. Potential yearly returns of 13%–20% are anticipated by analysts, fueled by a solid capital allocation, steady margins, and a growing commercial footprint.
AZO Earnings Forecast
Auto parts retailer AutoZone AZO is scheduled to release its fiscal fourth-quarter earnings report next Tuesday, before the opening bell. With shorter shipping times and a stronger sales team, the stock is trading close to its all-time high. However, high-interest costs and an extended balance sheet are cause for concern.
The company is anticipated to report Q4 revenue of $53.61 for each share, which would represent a 15.4% increase over the same quarter last year. The following four-quarter median revenue surprise for AutoZone is 5.75%.
Estimated revenue for the fourth quarter was $6.2 billion, an increase of 9%. For 34 years running, AutoZone has produced record-breaking sales figures.
Over the previous sixty days, earnings projections have somewhat decreased. The shareholders should proceed cautiously when examining the results because shares can be volatile in the wake of earnings releases.
AutoZone Stock (AZO) Technical Analysis
In the daily chart of AZO stock price, the recent price shows a corrective pressure below the April 2024 high while the current price is hovering below the 50-day EMA line.
In the broader context, the 200 day Simple Moving Average is below the current AutoZone stock price and working as a strong support. Moreover, the static support of 2893.19 is the immediate support, hovering below the 200 day SMA.
In this context, a downside correction is pending as the gap between the current price and high volume line was widened. In that case, the price is likely to find support from the 2983.19 level in the coming days. However, a bullish rebound from the 2900.00 to 2780.49 level could be a reversal zone, from where a valid rebound with a proper candlestick formation could signal a trend reversal.
