The Installment Plan Buyout

01/27/2011 11:52 am EST


David Fried

Editor, The Buyback Letter

Parts retailer AutoZone and health insurer Aetna are putting copious cash flow to work by buying back a lot of stock, writes David Fried of David Fried’s Buyback Letter.

Memphis-based AutoZone (NYSE: AZO) is the nation's leading retailer and a leading distributor of automotive replacement parts and accessories with more than 4,600 stores in the US, Puerto Rico, and Mexico. 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 31 years ago, AutoZone has joined the New York Stock Exchange and earned a spot in the Fortune 500.

The troubled economy had been somewhat of a boon for Autozone and others like it, as car repair and parts retailers reap the benefits of the recession, since more people tried to fix and maintain their own cars. In fact, auto parts chains had their best year in a decade, and AutoZone shares were up 72% in 2010. Over the past 12 months, AutoZone generated $1,015.0 million cash on net income of $767.1 million, which translates into AZO turning 13.4% of its revenue into free cash flow.

Now, as new car sales have begun to pick up, auto parts stores may not be quite the high flyers they were last year, but the trend for consumers to own their aging cars longer than normal still seems strong. Domestic sales for stores open at least one year increased 9.5% for the fiscal first quarter ended Nov. 20.

Aetna’s Healthy Self-Regard
Aetna (NYSE: AET) is one of the nation's leading diversified health care benefits companies, serving more than 35 million people. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life, long-term care and disability plans, and medical management capabilities. Customers include employer groups, individuals, college students, part-time and hourly workers, health plans, government-sponsored plans and labor groups.

Earlier this month, Aetna announced it had completed its acquisition of Medicity, a health information exchange technology company headquartered in Salt Lake City, Utah. Medicity offers a range of products and services that enable health systems, hospitals, physician practices and health information exchanges to securely access and exchange health care information.

In the last 12 months, management has reduced shares outstanding by 7.7%.

[Fried predicted back in October that the ample cash on corporate balance sheets would continue to drive buybacks and market gains. Louis Navellier is also a fan of Autozone. Shares are down 8% month-to-date, and perhaps the company will do more shopping—Editor.]

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