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Four (4) Reasons Autozone (NYSE:AZO) Is A Buy Before It Reports Earnings

Friday, August 14, 2020 | Thomas Hughes
Four (4) Reasons Autozone (NYSE:AZO) Is A Buy Before It Reports EarningsAutozone Is Firing On All Cylinders

There is so much to like about Autozone (NYSE:AZO) right now I am not sure where to start. The company is a leader in the after-market car industry, is supported by strong trends within the industry, it's looking at growth this year and next year, and is set up to beat the consensus when it reports in a few weeks. Because these trends are tied together in a way in which one supports the other I think the best thing to do is lay them all out, one by one. The bottom line, though? Autozone is firing on all cylinders.

1- Used Car Trends Are Strong And Support Business For Autozone

All the data coming out of the used car industry is strong. Demand for used cars, particularly over the eCommerce networks, is driving results for all the dealers. What this means for Autozone is a growing market to sell its aftermarket, replacement, and upgrade items to. Vroom (NYSE:VRM) reported just the other day saying sales through its eCommerce platform were up 74% over the past year while Cars.com (NYSE:CARS) echoes the sentiment. According to Cars.com traffic, traffic and click-throughs both increase high single-digits. The number one thing driving this trend? The rising prices of new cars. New car prices are projected to rise another 5.7% this year as 0.0% financing and longer term-obligations draw in unwitting victims.

2 - Autozone Competitor O’Reilly Automotive Beat Consensus

O’Reilly Automotive (NASDAQ:ORLY) reported 2Q earnings a few weeks ago and absolutely crushed the consensus estimate, so bad you have to wonder what the analysts were doing because they weren’t paying attention to the market. The 16% YOY comp increase beat the consensus by 1560 basis points, the analyst was expecting closer to 0.6%, and all that strength showed up in the financial results. Revenue grew by nearly 20% while EPS of $7.10 beat by $3.00. O'Reilly definitely has more gas in the tank and so does Autozone.

O’Reilly CEO Greg Johnson said that "After experiencing significant COVID-related sales headwinds in the first two weeks of the quarter, we saw an immediate and dramatic improvement in our business and sustained robust, record-setting sales volumes throughout the remainder of our second quarter."

3- Autozone, The Outlook Is Good Consensus Will Be Beaten

Looking at the numbers, Autozone isn’t expected to do badly this year at all. The company is projected to post a small increase in YOY revenue and a similar decrease in EPS, about 1.0% each, but that doesn’t matter. For one thing, the YTD results and consensus for the 4th quarter are already enough to beat the full-year consensus. And the analysts have been upping their estimates. By matching the FQ4 consensus Autozone will produce both revenue and earnings growth in 2020. Looking to next year, the consensus has that growth accelerating to low double-digits on the bottom line.

Notably, Autozone just announced it was going on a hiring spree. The company is going to hire more than 20,000 new employees to help it meet rising demand. New hires will be across all operating segments. “We are fortunate to be in a position to create so many rewarding jobs and career opportunities, especially in this current environment,” said Bill Rhodes, Chairman, President, and CEO of AutoZone.

4- The Technical Outlook For Autozone Is Bullish

Shares of Autozone corrected hard along with the rest of the market back in February and March. Unlike large portions of the market, shares of Autozone bounced back strongly and set a new high for the year. Since then the price action consolidated, reconfirmed the uptrend, and is now set up to do so once again. With price action sitting on the short-term moving average and the indicators set to fire bullish crossovers, it looks like an opportune time to get into this stock. The warning is that resistance is just above the current levels at $1269. The mitigating factor is that $1269 is the all-time trading high for this stock and the outlook for higher prices is good.

Four (4) Reasons Autozone (NYSE:AZO) Is A Buy Before It Reports Earnings

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
AutoZone (AZO)1.5$1,177.08-0.8%N/A18.49Buy$1,268.00
O'Reilly Automotive (ORLY)1.4$455.77+0.4%N/A22.34Buy$455.39
Vroom (VRM)0.0$50.65+9.1%N/AN/ABuy$67.56
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