AutoZone Is A DIY Winner, Jefferies Says In Upgrade

Auto parts and accessories retailer AutoZone, Inc. AZO can count on significant do-it-yourself sales while working on growing long-term sales in the do-it-for-me category, according to Jefferies.

The AutoZone Analyst: Bret Jordan upgraded AutoZone from Hold to Buy with a price target lifted from $1,230 to $1,325.

The AutoZone Thesis: Autozone's "outsized" DIY exposure, at around 78% of total sales, represents a favorable tailwind as economic hardships force more people to maintain their older vehicles, Jordan said in a Friday upgrade note.

The company historically sees record sales growth in the months and years exiting a recession, the analyst said. If history is any indication, the company could see strong growth in the near-term given high levels of unemployment and COVID-19 related economic hardships, he said. 

Over the long-term, Autozone needs to grow share in the DIFM market, and there is reason to believe management is heading in the right direction, Jordan said.

DIFM-related sales have risen at a 12% compounded annual growth rate since fiscal 2010, the analyst said. 

AutoZone has further room to grow, as just 15% of all stores lack a commercial program that would help generate new sales in the DIFM category, he said. 

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"Longer term, we expect AZO's DIFM segment will continue to outpace overall industry sales growth as the company expands commercial operations and gains share, which should
translate into meaningful EPS growth."  

Autozone offers investors an impressive track record of an "aggressive" share buyback program, and has repurchased 85% of all outstanding shares since 1998, Jordan said.

The company should be able to repurchase around 1.5 million shares a year, and this will translate to an extra $8.90 in EPS in fiscal 2022, the analyst said. 

AZN Price Action: Shares of AutoZone were trading higher by 1.64% Friday to $1,159.69.

Photo by Steve Morgan via Wikimedia.