Boasting a market cap of $46.58 billion, AutoZone, Inc. (AZO - Get Rating) is a leading player in retailing and distributing automotive replacement parts and accessories across the United States, Mexico, and Brazil.

With AZO set to disclose its fiscal 2024 first quarter (ended November 18, 2023) earnings report on December 5, 2023, this article delves into the fundamentals of the stock with the aim to ascertain whether it presents a compelling investment opportunity. Let us understand in detail.

In the fourth quarter, AZO disclosed better-than-anticipated profits and revenue, driven by a surge in demand for its do-it-yourself (DIY) automotive parts. The Chairman, President, and Chief Executive Officer of AZO, Bill Rhodes, attributed the company’s success to its commitment to customer service and reliable advice.

Despite a slow start in the quarter, improvements were observed in the latter part. Additionally, Rhodes acknowledged the challenge of lower-than-expected growth in domestic commercial but expressed confidence in the company’s implemented initiatives to drive stronger growth in fiscal year 2024.

Furthermore, during the same quarter, AZO expanded its retail presence by introducing 53 new stores in the United States. Despite the closure of one store during this period, the company simultaneously inaugurated 27 new stores in Mexico and 17 in Brazil. Overall, these efforts resulted in a net addition of 96 new stores for the quarter.

As of August 26, 2023, AZO’s store distribution comprised 6,300 stores in the United States, 740 stores in Mexico, and 100 stores in Brazil. The cumulative total of 7,140 stores illustrates the company’s deliberate focus on strategic expansion, reinforcing its position in both the domestic and international markets and augmenting its overall store presence.

In terms of price performance, AZO’s shares have surged 7.1% year-to-date and 11.3% over the past six months to close the last trading session at $2641.75

Here are the financial elements that could shape AZO’s performance in the near term:

Strong Financials

For the fiscal fourth quarter, which ended on 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 $2.99 billion.

Furthermore, the company’s net income amounted to $864.84 million and $46.46, up 6.8% and 14.7% from the prior-year quarter, respectively. Also, its operating profit improved 10.8% from the year-ago value to $1.22 billion.

Favorable Analyst Estimates

The consensus revenue estimate of $4.19 billion for the first quarter of fiscal 2024 (ended November 2023) reflects a 5.2% increase year-over-year. While, the consensus EPS estimate of $31.59 for the same quarter represents a 15.1% year-over-year improvement.

Solid Historical Growth

Over the past three years, AZO’s revenue, EBIT, and EBITDA have grown at CAGRs of 11.4%, 11.6%, and 11.1%, respectively. In addition, the company’s net income and EPS have improved at CAGRs of 13.4% and 22.5% during the same period, respectively.

Robust Profitability

The stock’s trailing-12-month net income margin of 14.48% is 225.3% higher than the 4.45% industry average. Likewise, its trailing-12-month Return On Total Capital (ROTC) of 34.04% is 462.4% higher than the industry average of 6.05%. Also, AZO’s trailing-12-month cash per share of $15.52 is 572.5% higher than the $2.31 industry average.

Furthermore, the company’s trailing-12-month EBIT and EBITDA margins of 19.90% and 22.75% are 166.6% and 106.1% higher than industry averages of 7.47% and 11.04%, respectively.

POWR Ratings Exhibit Solid Prospects

AZO’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct 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 justified by its higher-than-industry profitability and a B for Sentiment, in sync with the positive analyst estimates for the to-be-reported quarter.

Within the A-rated Auto Parts industry, AZO is ranked #28 out of the 61 stocks.

Beyond what we’ve stated above, we have also rated the stock for Growth, Value, Momentum, and Stability. Get all ratings of AZO here.

Bottom Line

AZO’s strategic expansion efforts, growth trajectory, strong financial standing, and robust profitability contribute to its promising outlook. Furthermore, positive sentiments from analysts, combined with a track record of consistently surpassing EPS estimates in each of the trailing four quarters, enhance the attractiveness of the company as a potential investment. Considering all these factors, AZO could be an ideal buy now.

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

While AZO has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Auto Parts industry: Ituran Location and Control Ltd. (ITRN - Get Rating), Standard Motor Products, Inc. (SMP - Get Rating), and DENSO Corporation (DNZOY - Get Rating), with an A (Strong Buy) rating. For exploring more Auto Parts stocks, click here.      

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AZO shares were trading at $2,638.82 per share on Monday afternoon, down $2.93 (-0.11%). Year-to-date, AZO has gained 7.00%, versus a 20.74% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Mukherjee

Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More...

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