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AutoZone, Inc. Message Board

  • value529 value529 Mar 4, 2004 2:10 PM Flag

    P/E = 12.8

    AZO's P/E with dilution is now 12.8 ...

    EPS = (91.7+121.7+207.4+126.0)/(87.26-4.0+1.4) = 6.46 per share

    P/E = 83.00/6.46 = 12.8

    In their conference call, they said their goal was to have long-term debt = 2.1 x EBITDAR, which they said they've finally achieved with $1.9B in LT debt. So next quarter, look for debt to stay about the same ... that means no more borrowing to repurchase shares.

    That said, their estimated $130M in earnings will be available for CapEx, net working capital (NWC) adjustments, or more repurchases. Using their earnings, they could take out up to 1.5M more shares at the current share price, and up to 2.6M more shares using projected earnings of $220M in the following quarter. By 8/31, EPS might be > $7.00. If the share price drops from here, they could take out even more shares, driving EPS even higher.

    But it's likely they will use some of their earnings for inventory adjustments and CapEx. So EPS at 8/31 will probably be closer to $6.80. Look for analysts to increase earnings estimates for the year (from $6.46 current consensus) while downgrading the stock... an unusual combination of events, but this is an unusual stock (ROE > 100% while Debt-to-Equity > 7.6).

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    • Pay on Scan is a nice system for AZO - but still and will always be only a small part of business. The inventory you see does not include the pay on scan merchandise, and still represents about 7 month of sales. Accept it or not but the balance sheet stinks, and very extreme if you comapre Azo to other retailers. Are they the only smart boys in town who know how to create value through leverage or are they wishfull gamblers with shreholders (and bondholders) money? I choose option #2. We will wait and see. I have patience.

    • <<In a slowdown, inventories don't change to cash fast enough to pay the [suppliers]>>

      So AutoZone managers are pretty smart for pursuing their Pay-On-Scan initiative, huh?

    • cash flow before share repurchases in May-03 quarter = $204,717

      cash flow before share repurchases in May-04 quarter = $120,715


      What am I missing?

    • In retail, it's the short term that kills you in a slowdown. AZO has about 1.6 B of debt to it's supplyers, and more or less the same amount in inventory, which is quiet high and makes me question the margins. In a slowdown, inventories don't change to cash fast enough to pay the accounts, and part of it becomes obsolete, so you have to mark it down to market price.Then everybody becomes nervous and won't lend you a dime, and supplyers stop shipping - and the whole thing comes to a stop. Happend so many times in the past in retail - and will happen again.

    • OK, let's say 3 years to pay back the debt if they wanted to. But what about your bankruptcy scenario... You said one bad year and they go bankrupt, but it probably would take more than one bad year, don't you think? The way I see it, if EBIT plummeted by about 50% from $980M down to $490M, they would still be able to service their debt without any trouble. EBIT would have to drop below $100M for them to be in trouble of defaulting, no? Even then it would take a few years for them to default. That seems pretty unlikely, for over $900M in EBIT to be erased, even in a bad year. Default risk just isn't a big problem, which is why they have a respectable credit rating, even with the leverage.

    • Free cash flow after capital expenditures and tax is closer to 600 M, and debt is close to 1.8 B, so it's more like three years to pay it - but still, I admit, reasonable. The problem with over leveraged co's like AZO is the risk. One lousy year in the business, and lousy years do happen in retail, count on that - and the company goe's belly up, and bond holders take over the business, while stockholders are left with zero. AZO's operating margins seem to good, there is a good chance they will go down. Sorry, but the whole scene, the high margins but lousy balance sheet simly look way to fishy.

    • <<yes, they could pay off all their debt if they wanted to in 2 years.........but their EPS would basically grow 2% per year because they would not be buying back shares reducing the share count. What kind of PE does a company with thin margins and flat EPS get? Not good. AZO in the $80's is a HORRIBLE investment.>>

      If they paid off their debt and shares outstanding were flat, EPS would grow 2%? Where do you get that number? Only 15% of the 29% EPS growth came from buybacks. Net Income was up 14%, so under the debt-repayment scenario, EPS would grow 14%, NOT 2%, as you say.

      And there would be an additional boost from not having to pay interest expense ($90M) on all that debt anymore (net of taxes). So there's another $60M boost to net income in the debt-repayment scenario.

      If you're down on AZO, fine, but at least post arguments that make sense (e.g. competitive pressures may erode their margins), and stop whining about debt.

    • yes, they could pay off all their debt if they wanted to in 2 years.........but their EPS would basically grow 2% per year because they would not be buying back shares reducing the share count. What kind of PE does a company with thin margins and flat EPS get? Not good. AZO in the $80's is a HORRIBLE investment.

    • AZO's P/E with dilution is now 12.6 ...

      EPS = (143.4+91.7+121.7+207.4)/(85.2-0.6) = $6.67 per share

      P/E = 84/6.67 = 12.6

      • 1 Reply to value529
      • This is probably the strangest stock in that both shorts and longs make money, I assume you are long. The shorts make money by driving it down. Then the company can buy MORE shares with the borrowed cash. Thus your share of the future profit goes even more (than had there been no shorts manupulation). As long as the company is committed to aggressive buy back, this should continue to work.

    • Value:
      Something is not adding up. If you allow the shorters to drive the stock down to say 60, that gives AZO chance to buy back some at better terms. Allow the shorter to cover, note there is no net drop of shares. This way, the shorters make money, the company saved money and the remaining share holders hold more fraction of the company. Who is the loser here?

      Following the logic further. I don't understand why should any one hope this stock to increazse in price. Isn't the larger goal that to own an ever larger share of the total pie (i.e. the company itself book valued at $5)?

      • 2 Replies to ptyk99
      • <<Value:
        Something is not adding up. If you allow the shorters to drive the stock down to say 60, that gives AZO chance to buy back some at better terms. Allow the shorter to cover, note there is no net drop of shares. This way, the shorters make money, the company saved money and the remaining share holders hold more fraction of the company. Who is the loser here?>>

        Losers are the people who buy from the shorts on the way down, plus if AZO is to repurchase shares after it drops AND the shorts are to cover, that's more shares than were shorted at the top that need to be purchased. Additional losers (under your scenario) are those who decide to sell after the drop. Regardless though, I'll ask again, can you say, "market manipulation"?

        <<Following the logic further. I don't understand why should any one hope this stock to increazse in price. Isn't the larger goal that to own an ever larger share of the total pie (i.e. the company itself book valued at $5)?>>

        Yes, long-term shareholders do benefit when a company's stock declines if that company is in the process of repurchasing shares *AND* if the stock did not decline because of an event which affected the value of the company (like, for instance, that same-store sales were flat).

      • I agree with the last meessage. The further it drops the better. Hopefully 50-60 for a couple years. But it never will. I really don't like companies with any debt so I will not buy more.

        I known lots of companies that aren't around anymore, Thrifty, Two Guys, Builders Emporium, Treasury, ... Thats what happens to companies with debt, they risk going too far.

 
AZO
513.22-1.35(-0.26%)Jul 28 4:03 PMEDT

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