Autozone stock price is still in the rally zone

Key Points

• Autozone issued a solid Q2 report that sent shares higher, confirming the uptrend in price action. 
• Share repurchases aided the outlook and reduced the share count by 8% in the last 12 months. 
• Analysts and institutions are committed to this stock.

Autozone NYSE: AZO shares surged following the FQ2 report, confirming the uptrend is intact. Because the news aligns with the outlook for growth and capital returns, the trend will likely continue through 2024. The technical picture is also favorable, with the stock breaking out of a bullish triangle. In this scenario, the stock could rise 15% to 18% soon and continue setting new highs into the year’s end. 

Autozone outpaces consensus and widens margin

Autozone’s performance in FQ2 was solid. The company grew revenue to $3.86 billion for a gain of 4.6%, beating the analysts’ consensus estimate. The outperformance is slim, about 250 bps, but compounded by a wider margin and an outlook for robust international growth. Systemwide comps are up 3.0%, aided by an FX tailwind. The FX-neutral comp is up 1.5%, led by a 10% gain in international markets. US-only comps are positive but barely at 0.3%. The top-line performance was also aided by adding 26 net new stores, an increase of 0.36%. 

Margin news is the most impressive. The company widened its gross margin by 160 basis points and controlled costs well. SG&A expense increased by only 50 bps, leaving the operating profit, net income and GAAP earnings above consensus and outpacing the top-line advance. Margins were improved on higher realized cost/merchandise margin compounded by lower supply chain costs and offset by increased wages and investment. The takeaway is that operating profit improved by 11%, net income by 8% and GAAP earnings by 17%. 

The increase in GAAP earnings is partly due to share repurchases, which were robust in 2023. The company repurchased 84,000 shares in Q2 for $223 million, reducing the share count by 7.8% YOY. The company has over $2 billion remaining under the current authorization, so repurchases should continue unabated in 2024. The share count has been reduced by 90% since repurchases began in 1998, as seen in the stock price. 

Sell-siders are buying Autozone in bulk 

The sell-side is firmly committed to Autozone and supporting the rally. Marketbeat.com tracks eighteen analysts who peg the stock at Moderate Buy and are lifting their price targets. The consensus is up 10% YOY and being led higher in 2024. The most recent revision is from Wedbush and was issued days before the Q2 release. Analysts at the firm reiterated an Outperform rating and a $2,950 price target, implying a small upside. 

Raymond James set the highest target of $3100 in December when it upgraded to Strong Buy. Analysts at that firm believe that Autozone’s strong auto-parts coverage and new hubs set it up with improved availability that should drive market share gains in the US this year. They see the stock as undervalued and the International segment as a long-term growth driver. 

Institutions are also committed to this stock, owning about 90% of the company. Vanguard is the largest holder at just over 10%; funds hold a fair amount, but a large portion is held by private capital, making this a tightly held issue. Among the benefits to shareholders is the lower-than-average 0.7X beta that helps to reduce portfolio volatility during market downturns. 

The technical outlook: Autozone is in an uptrend, gaining momentum with room to run

The technical outlook for AZO stock is robust. The market is in an uptrend, confirming the uptrend and indicators suggest ample room to run. Stochastic and MACD are bullish, with MACD rising and both indicators low in their ranges. Assuming the market continues to increase, it could advance for several more weeks before hitting the next peak.