AutoZone Travels Down the Buyback Road

10/30/2020 5:00 am EST

Focus: TRANSPORTATION

David Fried

Editor, The Buyback Letter

Our Premium Portfolio — comprised of stocks undergoing buyback programs — is up 295% since inception (August 2, 2000) vs. a gain of 138% in the S&P 500 over the same time frame, asserts David Fried, editor of The Buyback Letter.

The latest addition to our portfolio is Memphis-based AutoZone (AZO) — a familiar name to veteran Premium Portfolio subscribers, since we bought and sold it a handful of times in the past 15 years. We had spectacular results from our purchase in 2010 (a 35.89% gain), and most recently, we bought in 2019.   

AutoZone is the nation's leading retailer and a leading distributor of automotive replacement parts and accessories with more than 6,300 stores in the U.S., Puerto Rico, Mexico and Brazil.

It operates in the Do-It-Yourself (“DIY”) retail, Do-It-for-Me (“DIFM”) auto parts and products markets. Each store carries an extensive line for cars, sport utility vehicles, vans and light trucks, including new and remanufactured hard parts, maintenance items and accessories.

Since opening its first store in 1979, AutoZone has joined the New York Stock Exchange and earned a spot in the Fortune 500. It has more than 90,000 employees it calls “AutoZoners.”

It’s been one of our favorite companies over the years because it makes money and grows profits. In our current climate, Americans are buying up used cars as they are avoiding mass transit and ride-sharing services, and AZO will benefit from that trend with more used cars on the road.

Because AZO offers customers everything they need for home-based vehicle maintenance and repairs, it has benefited from the shift in customer behavior to DIY projects during this pandemic.

Autozone had top-line revenues of $2.5 billion in Q1, and that top line grew sequentially through the next quarters. In Q2, revenues were $2.8 billion, and in Q3, the company’s fiscal fourth, revenues grew to $4.5 billion. That included a 21.8% growth in same-store sales year-over-year, the highest quarterly growth since the company went public in 1991.

AutoZone pays no dividend (share appreciation and buybacks are their methods of rewarding investors), and over the last 3 or so years, shares gained 100% in value.

Analysts have said they expect 30% growth during the next 12 months, and AZO management issued forward-looking guidance for the first time in 5 years that said the company sees sales remaining “elevated for some time,” in a positive note for both fiscal first quarter and the whole fiscal 2021.   

Although the company decided not to buy back stock in its latest quarter due to the uncertainty of the pandemic, AutoZone historically has long been an active and committed repurchaser, so much so that financial pundits have joked that it sometimes looks like the company is taking itself private on an installment plan.

One analyst said, “Near-term and long-term investors should think about share repurchases for this particular story, because we simply just don't see negative earnings revisions on the horizon.” AutoZone continues on the buyback road, having reduced shares outstanding by 4.798% in the last 12 months.

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