AutoZone (AZO) Earnings Analysis: Growth or Value Opportunity?

NYSE: AZO | AutoZone Inc. News, Ratings, and Charts

AZO – AutoZone (AZO) reported mixed financial results in the third quarter of 2024. While the auto parts retailer’s long-term outlook appears bright with strategic acquisitions and store network expansion, it faces decelerating domestic sales growth and rigid competition in the near term. So, should you buy or hold this stock? Read more to find out….

AutoZone, Inc. (AZO), a leading retailer and distributor of automotive replacement parts and accessories, reported mixed fiscal 2024 third-quarter results. The company posted revenue of $4.23 billion, an increase of 3.5% compared to the third quarter of 2023. However, domestic same-store sales growth decelerated from 0.3% in the prior quarter to flat in the third quarter.

During the quarter, the company’s gross profit, as a percentage of sales, came in at 53.5%, 102 basis points higher than in the prior year’s period. AZO reported an EPS of $36.69, surpassing the analysts’ estimate of $35.96.

Under the share repurchase program, AZO repurchased 242 thousand shares of its common stock at an average price per share of $3,036, for a total investment of $734.7 million. At the end of the third quarter, the company had $1.4 billion remaining under its current share repurchase authorization.

Furthermore, during the quarter, AutoZone opened 32 new stores in the U.S., 12 in Mexico, and one in Brazil, coming to a total of 45 net new stores. As of May 4, 2024, the company had 6,364 stores in the U.S., 763 in Mexico, and 109 in Brazil, for a total store count of 7,236.

“Our AutoZoners’ ongoing commitment to providing customers with Trustworthy Advice and WOW! Customer Service allowed us to deliver stronger than planned bottom line results,” said Phil Daniele, President and Chief Executive Officer.

He added, “Conversely, we were pleased with the strong same store sales results we achieved in our international business. As we begin our all-important summer selling season, we are very excited about the initiatives we have in place to enhance our inventory availability, continue to accelerate our domestic Commercial business, and provide great customer service.”

Shares of AZO have gained 12.7% over the past year to close its last trading session at $2,777.54. However, the stock has declined 6.5% over the past month.

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

Mixed Financials

For the third quarter that ended May 4, 2024, AZO’s net sales increased 3.5% year-over-year to $4.23 billion. Its same-store sales grew just 0.9% year-over-year, while domestic same-store sales were flat. Its gross profit rose 5.6% from the prior year’s quarter to $2.26 billion. The company’s operating profit of $900.18 million indicates growth of 4.9% year-over-year.

Also, the company’s net income came in at $651.73 million and $36.69 per share, up marginally and 7.5% from the prior year’s quarter, respectively. However, AZO’s current liabilities increased to $9.19 billion versus $8.46 billion as of May 6, 2023.

Mixed Historical Growth

AZO’s revenue grew at a CAGR of 10% over the past three years, while its EBITDA improved at a CAGR of 10.2%. Its EBIT increased at a CAGR of 10.3% over the same period, while the company’s net income and EPS grew at respective CAGRs of 11.9% and 21.7% over the same time frame.

However, the company’s levered free cash flow decreased at a CAGR of 12.6% over the same timeframe.

Favorable Analyst Estimates

Analysts expect AZO’s revenue for the fourth quarter (ending August 2024) to come in at $6.27 billion, indicating an increase of 10.2% year-over-year. The consensus EPS estimate of $54.58 for the same period reflects a 17.5% year-over-year improvement. Further, the company’s revenue is expected to grow 3.8% year-over-year in the fiscal year 2024.

For the fiscal year 2024, the company’s revenue and EPS are anticipated to grow 6.5% and 14.9% year-over-year to $18.60 billion and $152.08, respectively. In addition, Street expects its revenue and EPS for the fiscal year 2025 to grow 3.8% and 8.6% from the prior year to $19.30 billion and $165.23, respectively.

High Profitability

AZO’s trailing-12-month EBIT margin of 20.60% is 167.2% higher than the 7.71% industry average. Its trailing-12-month net income margin of 14.70% is significantly higher than the industry average of 4.60%. Likewise, the stock’s trailing-12-month levered FCF of 7.96% is 46.7% higher than the industry average of 5.43%.

Furthermore, the stock’s trailing-12-month ROTC and ROTA of 34.84% and 15.68% are higher than the 6.24% and 4.20% industry averages, respectively.

Elevated Valuation

In terms of forward non-GAAP PEG, AZO is currently trading at 1.23x, 19.4% lower than the industry average of 1.53x. However, the stock’s forward EV/Sales and Price/Sales of 3.21x and 2.56x are considerably higher than the industry average of 1.20x and 0.85x, respectively.

Additionally, the stock’s forward EV/EBITDA and Price/Cash Flow of 13.55x and 13.88x are 41.6% and 45% higher than the industry averages of 9.57x and 8.86x, respectively.

POWR Ratings Reflect Uncertainty

AZO’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral 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 a C grade for Value, consistent with its mixed valuation. Also, the stock has a C grade for Growth, in sync with its mixed financial performance and historical growth.

AZO is ranked #40 among the 60 stocks in the A-rated Auto Parts industry.

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

Bottom Line

AZO reported solid financial results in the last reported quarter. Further, the company’s long-term prospects appear promising, driven by the expansion of its store footprint, strategic acquisitions, and investments. However, it grapples with decelerating domestic sales growth and rising competition from O’Reilly Automotive (ORLY) and, Inc. (JD).

Given AZO’s mixed financials, elevated valuation, and heightened competition, waiting for a better entry point in this stock seems prudent.

Stocks to Consider Instead of AutoZone, Inc. (AZO)

Given its near-term uncertain prospects, the odds of AZO outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Auto Parts industry instead:


Garrett Motion Inc. (GTX)

Allison Transmission Holdings, Inc. (ALSN)

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

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

AZO shares were trading at $2,778.01 per share on Friday morning, up $0.47 (+0.02%). Year-to-date, AZO has gained 7.44%, versus a 11.21% rise in the benchmark S&P 500 index during the same period.

About the Author: Rjkumari Saxena

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
AZOGet RatingGet RatingGet Rating
JDGet RatingGet RatingGet Rating
ORLYGet RatingGet RatingGet Rating
TDBOYGet RatingGet RatingGet Rating
GTXGet RatingGet RatingGet Rating
ALSNGet RatingGet RatingGet Rating

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