Auto parts retailer AutoZone (AZO) is bucking a trend that’s spreading across the markets: retail disaster. The company’s latest earnings report has the stock up over 3% today while the overall market is down.
There’s reason enough to be bullish about AutoZone, not least because it’s bucking the downward trends facing retailers today. Those factors contribute to making me bullish on AutoZone’s chances, since it has a use case for bust times as well as for boom times.
The last 12 months in AutoZone trading have been mostly up, though recently, that’s turned around somewhat. Back in April, AutoZone hit a high for the year, clearing $2,250 per share for the first time in over five years. It’s retracted since then, but AutoZone is still trading well above where it was this time last year, when it was down to around $1,410 per share.
The latest news gives the company a further boost. Releasing its earnings report revealed that the company’s earnings and revenue both turned in beats against expectations. The company posted $29.03 per share in earnings, and Zacks estimates looked for $25.87 on average. Meanwhile, revenue also came in ahead of expectations, with $3.87 billion brought in against $3.7 billion projected by Zacks.
Wall Street’s Take
Turning to Wall Street, AutoZone has a Strong Buy consensus rating. That’s based on eight Buys and two Holds assigned in the past three months. The average AutoZone price target of $2,222.50 implies 19% upside potential.
Analyst price targets range from a low of $1,980 per share to a high of $2,400 per share.
Investor Sentiment is at Odds with Itself
AutoZone is in a solid position right now, but not everyone feels the same. AutoZone currently has a Smart Score of 6 out of 10 on TipRanks. That puts it at the high-middle end of neutral, two ranks below “outperform.”
Hedge fund involvement is a fairly good sign of what’s happening here. Hedge funds, based on the TipRanks 13-F Tracker, reduced their AZO involvement for the second quarter in a row. Not particularly far, certainly, but they definitely didn’t add. Hedge funds went from 166,807 shares in September 2021 to 159,241 in December 2021 to 129,011 in March 2022.
Insider trading, meanwhile, is a bit different. Insiders sold $9.8 million worth of shares in the last three months. However, buy transactions led sell transactions 11 to eight since February 2022. Buy transactions also led sell transactions over the last 12 months, with 41 buying transactions against 28 selling transactions.
As for retail investors that have portfolios on TipRanks, they’re turning around, on average. TipRanks portfolios that held AutoZone shares were down 0.1% in the last seven days but were down fully 2.0% in the last 30 days.
Meanwhile, AutoZone’s dividend history simply isn’t there to discuss. Nor does it appear to have any plans to start issuing a dividend. The company prefers to return capital to shareholders via continuous share buybacks instead.
A Solid Pick in Good Times and in Bad
The absolute best thing about AutoZone is that it has a valid, viable use case for both good times and bad. Sure, it’s a pricey stock that many investors won’t be able to afford much of—100 shares come in at more than the price of some houses—and there’s no dividend to speak of. However, it’s one of a few stocks that are just as likely to succeed in good times as they are in bad.
When times are bad—like the ones we’re seeing now—consumers do more to repair the cars they have rather than trying to buy new ones. Throw in the chip shortages and rising prices at the dealership, and it’s an environment tailor-made for fixing your old car instead of buying a new one.
AutoZone offers a range of parts directed at fixing those problems cars may face. Meanwhile, when times are better, customers seek to improve their cars with aftermarket parts. That’s also a good way for AutoZone to step in, thanks to its range of options.
There are always certain needs for cars that occur regardless of the larger macroeconomic environment. Topping the list are items like new headlights, as well as new batteries.
Basically, for AutoZone, there really isn’t a boom or bust. Certainly, some times may be thinner than others; sometimes, customers just can’t afford to even fix their current cars.
Yet even in the slower times, sales are still fairly brisk, just for different things. This is a retailer that bucks the trends of boom and bust cycles, and that makes it an attractive buy for anyone looking to preserve wealth through stock purchases.
Concluding Views
AutoZone is perhaps one of the retailers least likely to be impacted by a potential recession. While certainly, the surging inflation felt everywhere will be felt here, it’s likely to be much less felt. Customers still need parts for their cars, after all.
That makes AutoZone much less of a risk than other retailers are right now. People need cars to get to work, and everywhere else they need—and to some extent want—to go. AutoZone is less about disposable income and more about daily necessities.
With the company currently trading below its lowest price targets, this is likely to be about as close to an entry point as it will get. Keep an eye on this one over the next few weeks for a better point; it’s likely to take at least some hits on inflation and the like.
However, this is also a company that’s also likely to hold its lead for some time to come. That, coupled with its solid use cases in both good and bad times, makes me bullish on AutoZone.
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