Autozone Poised To Benefit As The Average American Car Is Now Over 11 Years Old

Argus maintained its Buy rating on AutoZone, Inc. AZO as it believes the company is poised to benefit from aging car population, low gas prices and increasing miles driven per car.

“The average age of an American car is over 11 years and there are a growing number of cars that are more than seven years old. If vehicles are driven approximately 12,500 miles per year, a car would have 87,500 miles after seven years,” analyst Christopher Graja wrote in a note.

The analyst noted these stats suggest increasing number of cars out of warranty, requiring extra maintenance, while low gas prices should encourage drivers to put more miles on their old vehicles.

In FY 2016, Graja expects the company to focus on improving inventory availability to drive sales and offer a wider assortment of parts through its programs.

“The auto parts sector is relatively insulated from internet competition because of in-store service, relationships with parts suppliers and established delivery to commercial customers, but we expect AZO to improve its own online offering,” Graja highlighted.

However, the analyst cut his FY17 EPS estimate to $45.75 from $46.00 to reflect higher expense rate. The current consensus estimate is $45.46.

Graja maintained his $875 target on Autozone shares.