AutoZone Stock Looks Like Solid Choice for Bulls

AZO authorized an additional $1.5 billion for its share repurchase program

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AutoZone, Inc. (NYSE: AZO) is one of the top retailers and distributors of automotive replacement parts and accessories with more than 6,000 stores in US, Puerto Rico, Mexico, and Brazil. 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. At last check, AZO is trading up 1.2% at $1,671.67.

On Oct. 5, AutoZone announced that its board of directors had authorized the repurchase of an additional $1.5 billion of the company’s common stock in connection with its ongoing share repurchase program. Since the beginning of the repurchase program in 1998, and including the new amount, AZO's board of directors has authorized $27.65 billion in share repurchases. According to  Jamere Jackson , CFO and EVP at AutoZone, "We remain committed to our disciplined capital allocation policy to drive growth and enhance shareholder returns while maintaining adequate liquidity.”

AutoZone stock has increased by about 46% year-over-year and has added about 53% since bottoming at am annual low of $1,085.85 in December. Additionally, shares of AZO have grown 40% year-to-date and the equity is currently off 4% from their Sept. 29 record high of $1,738.78.

Meanwhile, the options pits have been much more pessimistic than usual. AZO's 50-day put/call volume ratio of 2.09 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 91% of readings from the past year, meaning puts have been picked up at a much quicker rate than usual. From a contrarian point of view, an unwinding of these bearish bets could send the equity even higher.

Checking in on the earnings front, AutoZone has notably outperformed earnings expectations on all four of its most recent earnings reports. For Q3 of 2020, AZO beat analysts’ estimates by a significant margin of $0.76, reporting an EPS of $18.61. For Q4 of 2020, AutoZone's EPS dropped to $14.93, still beating expectations by a significant margin of $2.09. For Q1 of 2021, AZO posted an increase in earnings, rising to $26.48 per share and beat estimates by a giant margin of $6.34. In their most recent quarterly report, AutoZone reported an EPS of $35.72 and beat expectations by another whopping margin of $5.80.

From a fundamental point of view, AutoZone stock is one of the strongest long-term options available in the market. The automotive support company has remained consistent throughout the years, growing revenues and net income. In addition, AZO has a forward price-earnings ratio of 17.24, which is a fairly attractive value in a market where large market cap companies trade above a 20.00 on average. Overall, there are very few factors that could go awry with AutoZone stock growth over the long-term.

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