On Feb 19, 2014, we issued an updated research report on AutoZone, Inc. (AZO). While the company is focusing on expansion of stores and share repurchase to boost earnings, rising debt and interest burden can affect financials in the long term.
AutoZone reported positive earnings surprise in three of the trailing 4 quarters. However, the company had a negative average earnings surprise of 0.9%.
AutoZone reported a 16.2% rise in earnings per share to $6.29 for the first quarter of fiscal 2014 (ended Nov 23, 2013) from $5.41 in the year-ago quarter. Earnings surpassed the Zacks Consensus Estimate by 3 cents. Net income went up 7.2% to $218.1 million from $203.5 million in the year-ago quarter.
Revenues increased 5.1% year over year to $2,093.6 million. However, it missed the Zacks Consensus Estimate of $2,099 million.
The rising average age of cars on the U.S. roads, about 11.4 years currently, is increasing the demand for auto parts, thus benefiting AutoZone. The company uses its significant cash flow to open new stores every year and maintain a low-to-mid-single-digit square foot growth rate.
However, AutoZone is suffering from rising debt. The company’s total debt increased to $4.17 billion as of Nov 23, 2013, from $3.8 billion as of Nov 17, 2012. This is increasing the interest expense as well. High gas prices, vendor consolidation and a high degree of reliance on its private label brands are some other headwinds.
The Zacks Consensus Estimate for AutoZone’s fiscal 2014 earnings is $31.39 per share, up 15.61% over fiscal 2013. The company is set to release its second-quarter earnings on Mar 4.
Key Picks from the Sector
AutoZone currently carries a Zacks Rank #2 (Buy). Some better-ranked stocks worth considering in the automobile industry are Gentex Corp. (GNTX), Advance Auto Parts Inc. (AAP) and STRATTEC Security Corporation (STRT), all of which carry a Zacks Rank #1 (Strong Buy).